Market Segmentation: Every company carries a different strength and have the ability to best satisfy need of only some set of audience with a similar kind of needs. The basic idea is that a company needs to structure their marketing activities in manner that it is able to best match the need of the right customers.
Companies over the past decades have shifted their focus from mass marketing to target a specific set of audience to develop products tailored made to match the needs of that particular market (i.e. customer group). So, the complete effort of a company is dependent on the identification of right customer set to serve. The following section and sub sections will help the readers in understanding about how to define meaningful groups of right customers to serve.
A market comprises of different types of customers. These customers can vary based on their location or attitude or buying habits or may be resources etc. In the best possible circumstances, a marketer should serve each customer having distinct need separately like a caterer should set a different menu based on the need of each client.
But, it would be extremely costly for most of the businesses to serve all their customers with different customized products. So, any company would try to find out the broad set of customers who share some unique purchase pattern or any other kind of similarities. This is where market segmentation comes into picture.
Market segmentation is the process to assemblage customers with shared desires or needs or wants together. It is based on identification of customers or buyers on the basis of their different needs. So, with the use of market segmentation, a business can split its market into different types of groups (with similar needs) to enable it to better serve its target or relevant customers, which is usually one or few segments only out of total market.
If one looks at the restaurant business, one can see market segmentation in action based on a variety of variables like fast food, some country specific cuisine etc. Majorly restaurants have defined a subset of their total market to serve and try to concentrate all their efforts on this selected sub group only. One example could be Pizza hut, which is primarily catering to the sub group of people interested in consuming pizza.
For segmenting or dividing the market into meaningful homogenous sub groups, there is no single way. A marketer would have to attempt different segmentation bases. In the following parts of this chapter, we will discuss out the demographic, geographic, psychographic and behavioral segmentation bases. We would be discussing about market segmentation bases based upon consumer markets.
1. Demographic Segmentation
One of the most commonly used bases of segmenting consumer markets is demographic segmentation. This may be due to the fact that demographic variables are closely related with need and usage rate and are also convenient to measure. Demographic segmentation comprises of distributing the market into clusters based on demographic variables. These demographic variables could be life cycle stage, gender, age, occupation, education, income, marital status etc. Demographic segmentation is also often used as it can be used in collaboration with other segmentation bases like that of psychographic or behavioral segmentation. Some of the important demographic factors are discussed below in detail. § Segmentation based on age
Preferences of consumers differ by age or change by age. There are companies that offer products based on the age category of the customers. Think of a shoe making company that is making different the size of shoes and varied style of shoes based on the age of the target audience. The style and size of shoes for kids would be different as compared to style or size of young adults. § Segmentation by life cycle stage
The life cycle stages a person is in can act as a demographic factor to segment the market. The needs or wants or attitudes of different people in varied life cycle stage would differ and each life cycle stage can act as a parameter for segmentation. The lifecycle stage example could be like: just finished a university degree, near to retirement stage, parents with children going to high school etc.
Segmentation by gender
Most commonly used segmentation is by gender. A shoe making company can segment its market based on the products for males or females, but it would not be enough to serve the purpose of a marketer. One needs to understand that gender based marketing would work best if it used in combination with other type of factors. § Segmentation based on income
A kind of segmentation which has been long used by marketers to do demographic segmentation is income based segmentation. In case of hotels this kind of segmentation is particularly effective where facilities can be provided specifically based on the income. For example, hotels like Hyatt or Ritz Carton appeal to the upscale income categories and no-frills hotel like ginger appeal to people who are modest with their income.
There are multiple other variables that can be used to segment the market based on demography.
Below given table summaries some major variables that can be used to segment consumer markets.
|Age||Under 5 years, 5-10 years, 10-20 years, 20-30 years etc.|
|Income||Less than 25,000 per month, 25,000 to 50,000 per month etc.|
|Life cycle stage||Bachelor, Married, Collage graduate etc.|
|Occupation||Professional, manager, student, farmer, housewife, technician etc.|
|Education||Matriculation, Senior secondary, graduation, post-graduation etc.|
|Religion||Hindu. Muslim, Sikh, Christian etc.|
|Nationality||Indian, Chinese, Japanese, British etc.|
2. Geographic Segmentation
Whenever a business divides or segments its market based on geography, it is called geographic segmentation. There are lot of ways in which consumer market can be geographically segmented. The common variables that can be used to segment the market geographically are country or region etc. Broadly, a multinational group can segment its market based on international region like south east Asia or middle east etc. This broad kind of segmentation comprises of the most basic type of segments can be created using geographic segmentation.
Think about geographic segmentation from the perspective of India. In a diverse country like India, one can find companies like Adidas or Airtel had been using different marketing strategies across the different regions and states. People who are little bit aware about region wise preferences of sports among Indians, know that people in the north India love or follow cricket as a sport more than anything else. The same is not true in case of people living in south. South Indians like football more as compared to cricket. In order to promote its products, Adidas uses this geography based preferences of the Indians. In the north India, Adidas uses cricket as a means to market or advertise its products and in the south India it uses advertisements based on football
Let us take another example to make things clearer using a fast-moving consumer goods company, which also make use of geography to their advantage. Any fast-moving consumer goods company can divide its consumer market based on the pin codes or area codes. Such kind of segmentation helps a fast-moving consumer goods company to maintain inventory levels of different products based upon its sales. The sales of a premium soap could be more in certain regions as compared to sales of a shampoo and the vice versa can also be true for some other regions of a country.
Geographic area can affect the products which are being offered for sale in a particular area. Based on geographic segmentation, a chain of restaurants doing business in Indian can vary its menu items grounded upon the region wise taste and preferences. If we take example of water purifier selling companies, one can find that purifiers based on ultra violet technology that are meant for light purification of water are marketed or sold more in the areas where water is clean and water purifiers with heavy purification technology like RO are sold more in areas where water quality is not good or there is problem of unclean water.
If we consolidate everything, geographic segmentation can help a company in following ways:
- Geographic segmentation is comparatively easy and very basic form of segmentation which can help in meaning division of consumer market into geographical units.
- This segmentation is especially beneficial for multinational companies with varied consumers across different regions having a different of needs or wants or sets of preferences.
- For a small business with limited financial resources, this kind of segmentation approach can help to being focus on a defined area.
- This approach can also be helpful if any business would be interested into dividing the market based on the urban or rural population. There are cultural differences among urban and rural areas that can be well exploited to match consumer needs using this approach.
- This approach also helps in defining sales targets more clearly based on geographic area and region based on sales potential. It can support a sales team to have clear sales targets which are based upon the geographical potential of respective markets.
- This type of segmentation can also help in strengthening the distribution network of companies by brining focus on geographical preferences.
Below given table summarizes some major variables that can be used to geographically segment consumer markets.
|Density||Urban, Sub-urban, Rural|
|City Size||Under 50,000, 50,000 – 2,00,000, More than 2, 00,000 etc.|
|Region of a country||North India, East India, South India, West India or Central India|
|Region of the world||Asia, Africa, central America, Middle east or The Caribbean|
3. Psychographic Segmentation
This type of segmentation to divide the market is primarily used to target a certain kind of customers. Psychographic segmentation classifies customers based on their personality, lifestyle, attitudes and interests. It uses psychological characteristics of consumers as bases to segment the market into meaning groups that are beneficial to the company. This segmentation helps a company to select people depending upon how they think and the kind of lifestyle they follow.
Psychographic segmentation is most useful when target market of a company comprises of fundamentally different demographics. This segmentation offers an influential way to market a similar product to groups of consumers that otherwise seem very heterogeneous. The segmentation done using psychographic factors would divide the market into sub sets based on not-so-visible characteristics like that of personality traits or expectations of consumers in the target market. A company can optimize their advertising spending if it is able to define its market niche using psychographic segmentation. Psychographic characteristics play a significant part in development of target market personas. Some among the important psychographic variables used to divide the population are discussed below:
- Lifestyle: One of the most popular segments in retail is lifestyle segment as everyone carries a different clothing habits. For example: the clothing buying patterns would differ among urban and rural consumers. If we consider automobile sector, one can see that in rural areas where SUV’s or rugged vehicles are in high demand, the companies are using more of below the line promotions like pamphlets, handbills, stickers, or on the road banners. In case of urban markets more of the mass media is used to promote automobiles and reach out to the target consumers.
- Activities, interest and opinions: Customers having similar likings towards some activities or having interest in similar kind of items or sharing common opinions can be clubbed together into one segment. One person may like reading fiction like harry porter and other may like reading love stories like P.S.I love you, but both can be clubbed under the same interest of reading.
- Values and attitudes: Each one of us is having a cultural value inherence from birth based upon how one is raised. This bringing up do contribute to our lifestyle. Lifestyle of the audience clubbed with values and attitude can support in identifying the right set of customers to serve profitably. Values and Lifestyles segments had been created based on these parameters which describe customers based upon their ideals, achievements and selfexpression.
- Personality: The factor of personality is generally used to club people with parallel personality characteristics like extrovert or introvert, emotional, imaginative etc. This kind of segmentation can be used by companies to serve customers better.
Below given table summarizes some variables that can be used to do Psychographic segmentation of consumer markets.
|Lifestyle||Longhairs, experiences etc.|
|Personality||Ambitious, authoritative or compulsive|
4. Behavioral Segmentation
Consumer market is divided into sub groups depending upon knowledge or use or response to a product or service in case of behavioral segmentation. A lot of marketers make use of behavioral factors as the starting point of creating consumer market segments. Some among the important behavioral variables used to divide the population are discussed below: § Occasion based segmentation
Occasion forms one of the bases for behavioral segmentation. Hotels target New Year eves for selling tickets of New Year parties. Archie’s celebrate different occasions with unique gift items related to respective occasions like Valentine’s Day etc.
§ Benefit based segmentation
There are several marketers which are serving products based on the categorizations of benefits sought by audience. Colgate pro relief tooth paste is targeted at people who are trying to find a solution to take care of teeth sensitivity. Colgate visible white tooth paste is targeted at people searching the benefit of white teeth. If we move to shampoos, HUL (Hindustan unilever limited) is offering multiple shampoo targeting at different benefits like anti dandruff and curing split ends. § User Status based segmentation
A market can be divided based on the user’s status like users, non-users, potential users, first time users or regular users. Hotel and restaurants are generally found to be interested in keeping regular users and attracting potential users.
§ Loyalty status based segmentation
A consumer market can be divided into sub groups based upon consumer loyalty. In hospitality industry, consumers can be loyal to some brand of hotel like Hyatt or there could be set of consumers who are always hunting for best deals on hotels and are not loyal to any particular brand and they just want good service. Companies are highly interested in increasing the loyalty of customers towards their brands because loyal customers are price insensitive compared to deal hunting customers.
Below given table summarizes some variables that can be used to perform behavioral segmentation of consumer markets.
|Usage rate||Heavy users, medium user and light user|
|Occasion||Special occasion or regular occasion|
|Loyalty Status||Strong, none, absolute|
|User status||Potential users, regular user, non-user etc.|
|Benefit||Good quality, quick service, user convenience etc.|