What is Market Segmentation?

Any company realizes that its products cannot be liked by all customers at once. There are too many buyers, they differ from each other with their needs and habits. Some firms should focus their attention on servicing certain parts, or segments, of the market. Each company should identify the most attractive segments of the market, which it is able to effectively service. But this view was not always inherent in the Sellers. Their views went through three stages, which included mass, differentiated and targeted marketing.

Today, firms are increasingly turning to targeted marketing, since any firm is interested in maximizing sales of its products. There is no need to spray your marketing efforts, if possible, to specifically convey the product to a potential buyer who is most interested in purchasing this product. And this product will be as close as possible to the "product of his dreams" or "essential goods". This is one of the main benefits of market segmentation.

Market Segmentation Definition

The market consists of buyers, and buyers differ from each other in very different parameters. Needs, geographical location, resources, purchasing habits can be different. And any of these variables can be used as examples of market segmentation. One of the most common mistakes that firms do searching for clients is an attempt to cover all of them.

Segmentation of the market is the breakdown of the market into segments (segments) by various characteristics. The purpose of market segmentation is to determine in the market groups of buyers who have similar customer needs and characteristics.

Here are the advantages of using the segmentation approach.

  • By identifying such groups of consumers, the enterprise gets more opportunities to develop a product or service that meets the needs of these groups.
  • This method is realized through the creation of a new product and a new brand, based on the promotion campaign, aimed at attracting the attention of the target segment.
  • Decisions on setting prices and on the distribution system are also made taking into account the interests of a specific segment of buyers.

Types of Market Segmentation

  • The geographical principle of segmentation presupposes the breakdown of the market into different geographical units - states, regions, counties, cities, communities. The firm may decide to operate in one or more geographical areas; or in all areas, but taking into account differences in the needs and preferences determined by geography.
  • The demographic principle of segmentation is to break down the market into groups based on demographic variables. Demographic variables are the most popular factors that serve as the basis for a distinction between consumer groups. One of the reasons for this popularity is that the needs and preferences, as well as the intensity of the consumption of goods, are often closely related to demographic characteristics. Another reason is that demographic characteristics are more convenient than most other types of variables to be measured.
  • Segmentation by psychographic principle involves the separation of buyers into groups based on membership in the social class, lifestyle and/or personality characteristics. Representatives of the same demographic group may have completely different psychographic profiles.
  • The behavioral principle of segmentation assumes the division of buyers into groups depending on their knowledge, relationships, the nature of the use of the goods and the reaction to this product.
  • Segmentation by socio-economic principle is a description of the people forming the segment. The use of the socio-economic group of characteristics is based on the hypothesis that it is the differences in socio-economic profiles that determine the differences in the preferences of buyers. Socio-economic factors are used as indicators of needs.

Choosing this or that approach to conducting segmentation, it is necessary to be guided by the following criteria:

  • importance of the segment of the enterprise;
  • quantitative indicators (the capacity of this market segment, market niche);
  • availability of segment development for the enterprise;
  • product profitability;
  • protection from competition (already won positions, a positive image of the enterprise);
  • possible performance in this segment for the future.

Segments Worth Targeting

The question of market coverage (the choice of the target market segment) can be solved by one of the following methods.

Firstly, it is possible to predict the differences in segments and to release one type of product to the entire market, providing it with marketing means an attraction in the eyes of all consumer groups. In this case, the strategy of mass marketing is applied. This strategy is attributed to the strategy of large sales. The main goal of mass marketing is to maximize sales. Penetration into a large number of segments is associated with a broad capture of the entire market and requires a significant expenditure of resources, so this strategy, as a rule, is used by large enterprises. For successful mass marketing, it is necessary that most buyers need the same properties of the goods. Methods of mass distribution and mass advertising, one generally recognized price range, a unified marketing program targeting different groups of consumers are used. However, as the market becomes saturated and competition grows, this approach becomes less productive.

Secondly, it is possible to concentrate efforts and resources of the manufacturer on one segment of the market (a specific group of consumers). In this case, the strategy of concentrated marketing is applied. This strategy is especially attractive with limited resources, for small businesses. The enterprise concentrates efforts and resources where it has the opportunity to take advantage, saving on the specialization of production and a strong market position due to the high degree of uniqueness and individuality in meeting the needs.

The third way to choose the target market segment is to cover several segments and release for each of them its product or its variety. Here, a differentiated marketing strategy is applied to a different marketing plan for each segment. Covering several segments of the market requires significant resources and the capacity of the enterprise to produce different brands or products. At the same time, the release of several brands of products, focused on several segments, allows maximizing sales.

Market Segmentation Examples

The company «L.A. Gear ", which successfully competed in the production of sports shoes with" Nike "and" Reebok ", in the early 1990's began to slide into the abyss. The value of its shares fell from $ 50 to $ 7. The firm had little money for advertising, which predetermined its fall. Goods of «L. A. Gear "was not much different from the products of famous competitors.

The new head of the company Mark Goldstone decided to concentrate efforts on the segment of footwear for children. It all started with funny children's shoes. "L. A. Gear "patented and released on the market shoes with light bulbs in heels. In the first year, five million pairs of shoes were sold. Children were delighted with such a toy. But the company went deep into the segment. For girls, a multicolored footwear with embroidered flowers and trinkets was produced, which immediately becomes popular among small women of fashion. The boys got shoes with mesh inserts that perfectly ventilated the quick boy's legs, as well as strong cast loops and padded lining. In addition, the design of children's shoes included a special patented insole, providing the necessary flexibility of the foot, i.e., ideal "orthopedic parameters".

Market Segmentation Theory

The term "segmentation of the market" was not used until the end of the 50-ies. Since then, however, it has had a strong impact on the theory and practice of marketing and advertising. It is based on a rather trivial observation that potential consumers are not identical, and that therefore the firm should develop various marketing programs for different subpopulations of the population or one program for one subgroup. It may seem obvious that consumers are different and a single marketing program aimed at everyone is not always the best strategy. This is the essence of market segmentation, which has the potential to significantly improve the management of organizations.