written by khatabook | November 22, 2022

Market Segmentation Explained | Benefits, Types, Examples

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Table of Content


Targeting the right market with the right message is crucial when reaching customers with a marketing ad. You might Reach a few audiences who might become your customers when you aim too broadly. But your message will also Reach people not interested in the products or services you offer. In short, if you fail to optimise your message for your potential customers, you will waste a lot of money on advertisements.

It is where Segmentation came into the picture. It is one of the best ways to ensure well-targeted marketing campaigns. Segmenting your target market becomes essential. Market segmentation allows you to direct your marketing efforts on individual customer segments. In this article, We will go deep into understanding market segmentation and its benefits, examples, and strategies.

Did you know? Wendell R. Smith first coined the term market segmentation in his 1956 publication based on Product Differentiation. It eventually became a major research issue in academic marketing by the 1970s.

What is Market Segmentation?

Market Segmentation is a business practice that splits your target market into approachable groups of customers. With this method, you can divide the market into smaller, more controllable groups having similar features, such as income, age, behaviour, interests, or location. It helps you improve and optimise your products, advertising, and sales strategies. For example, say a marketer advertises a new brand of pet food. He can divide the audience into groups on whether they have a pet. He could further segment the audience regarding what kind of pet they have. Then, he can advertise the food formulated for their pet’s breed.

There are generally three criteria to identify market segments:

  • Homogeneity, or similar needs of a group
  • Distinction, or being different from other segments
  • Reaction, or Common response to the market. 

Market segmentation helps a business marketer to figure out which products have the highest chance of gaining a share in the target market. With this, a company can improve its overall efficiency and produce the best return on investment( ROI). You should have a solid marketing mix if you go for market segmentation.

Also Read: Top 10 Cities for doing business in India

Benefits of Market Segmentation

Companies that implement market segmentation enjoy long-term profitability and growth. You can get an edge over your competitors by proving to your target customers that you understand their needs better. As per a study, companies with good market segmentation strategies are in a better place to increase sales and engage with their prospective customers. It offers the following benefits:

  • Stronger brand image- Personal messages to your customers make your brand stand out. By identifying the market segment and crafting the message, the organisation’s branding and messaging are more likely to connect with the audience. It also creates better customer experiences with the company.
  • Enhanced resource efficiency- When an organisation reaches out to a particular group of customers, it needs a precise approach. It will often cost less than reaching out to a broader group of audiences. In other words, the smaller the group, the lower the costs for the organisation. It enhances resource efficiency by focusing on a smaller segment rather than the entire market.
  • Increased brand loyalty- When customers feel understood and uniquely well-served, they are more likely to build long-term relationships with the organisation. In addition, market segmentation fosters a sense of belongingness among the customers since personal marketing messages resonate well with them. Hence, there is a higher chance that they will stick to your brand.
  • Targeted digital advertising- Market segmentation enables you to understand your audience’s characteristics to implement better-targeted advertising strategies. Hence, an organisation can focus its marketing efforts on specific buying habits, ages, locations, and interests.
  • Stronger market differentiation- Market segmentation allows a company to craft a specific message it wants to convey to the target audience. It becomes essential to communicate how an organisation is different from its competitors. It helps in creating product differentiation. Hence, the management conveys the exact message more likely to be memorable to the audience.
  • Increased profits- An organisation can set the prices of its products according to how much the potential customers are willing to spend. It is because different customers belong to different income categories. Hence, if the company knows this, it can avoid over or under-selling itself. It results in lower costs which in turn leads to increased profits.

Also Read: Top 10 Business Ideas After Lockdown

Types of Market Segmentation

Market segmentation is of five types as mentioned below:

  • Demographic Segmentation- This market segmentation strategy involves sorting the market into customer demographics. These are age, education, gender, income, race, or occupation. Demographics is the most commonly used form of Segmentation as it assumes that people with similar demographics will have similar tastes and needs. For example, most Users of a new video game console may be young men with disposable income.
  • Geographic Segmentation- This strategy is helpful for larger organisations that seek to expand into different locations and branches. Geographic Segmentation can technically be a subset of demographic Segmentation. It assumes that individuals within a given geographical area may have similar preferences and needs. An organisation can determine where to sell and advertise by understanding the climates of the customer groups. It can segment its customers according to city, state, country, climate, rural or urban. For example, a clothing company may advertise more rain suits in the Pacific Northwest Area than in the Southwest locations.
  • Psychographic Segmentation- This segmentation strategy strives to classify the customers based on their lifestyle, personality traits, values, and interests. In other words, it determines the psychological aspects of consumer behaviour. Though this segmentation approach is not easy to achieve, it provides the Strongest market segment results by grouping people based on intrinsic motivators. For example, a fitness clothing company may sort its target customers into groups of individuals who are interested in fitness and healthy living.
  • Behavioral Segmentation- This approach relies on consumer actions and decision-making patterns of target customers. These patterns include lifestyle, purchase, and usage. It divides customers based on how they previously responded to the markets and products. Spending habits may indeed change with time. But this approach assumes that customers’ prior spending habits indicate what they might purchase in the future. For example, new generations are traditionally more likely to buy more craft beer. On the contrary, older consumers are in the habit of Buying national brands.
  • Firmographic Segmentation- This strategy is similar to demographic Segmentation. The only difference is that firmographics focus on organisations while demographics look at individuals. Firmographics would consider factors like an organisation’s number of employees, the number of offices, the number of customers, etc. For example, a software provider will approach a big firm with a more diverse suite. On the other hand, it would Approach smaller firms with simple products and a fixed fee.

Also Read: Small Scale Business Ideas with Low Investment

Market Segmentation Strategies

Given below are the main strategic approaches to Market Segmentation:

  Number Of Segments

Segmentation Strategy

Remarks

Zero

Undifferentiated Strategy

It involves mass marketing and a non-segmentation approach.

One

Focus strategy

The focus is on a small, approachable, and tightly defined target customer segment. Hence, it involves niche marketing. 

Two or more

Differentiated Strategy

The focus is on two or more tightly defined customer segments. It involves multiple niches.

Thousands

Hyper-segmentation

The focus is on customising the product for each consumer. It involves one-to-one marketing.

The following factors affect an organisation’s segmentation strategy:

  • Product variability- A Concentrated approach is suitable for differentiated products, say, cars. However, undifferentiated marketing is more appropriate for highly uniform products such as steel or sugar.
  • Company resources- A differentiated approach is more appropriate when the resources are limited.
  • Product Life Cycle- In the case of new products, the company uses one version at the launch stage. However, it may be necessary to differentiate when more competitors enter the market over time.
  • Competitive activity- Applying an undifferentiated marketing approach may be a disaster when competitors use a differentiated segmentation strategy. A company should always consider which marketing segmentation approach it should use.
  • Market features- A company should use an undifferentiated marketing strategy when all consumers have similar preferences or are not ready to pay extra for different quality.

Conclusion

Market segmentation is a highly effective business method that enables organisations to understand the needs and preferences of their customers. Thus, it sends a message to them, hence ensuring brand success. This blog helped you to learn how a business can direct its marketing efforts to the target audience to ensure growth, profitability, and success. The better you know your target audience, the more effective your campaigns and the more fruitful your messages are. Hence, in this article, We discussed the definition and importance of Market Segmentation along with its types and strategies. 

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FAQs

Q: Mention any three challenges in implementing market segmentation.

Ans:

A company will encounter the following challenges when segmenting the market:

  • Companies cannot enjoy mass-scale production since customers in each Specific segment are limited.
  • Market segmentation is an expensive approach since producers need to maintain a large stock for different styles and sizes of products.
  • It results in expensive marketing since the marketer has to formulate several marketing strategies for different segments.

Q: What is institutional market segmentation?

Ans:

The market consists of non-profit organisations known as institutional markets segmentation.

Q: Which is the most complicated market segmentation in practice?

Ans:

Psychographic Segmentation is often the most complicated approach since it classifies customers according to their personalities and opinions. These traits can easily change.

Q: Why is Market Segmentation important?

Ans:

Market Segmentation is a crucial element in building a marketing plan. It allows an organisation to effectively read and understand customers’ purchasing habits and develop suitable segmentation strategies.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.