Market Segmentation: Definition, Types, Importance & Example

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Market Segmentation

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Market Segmentation- Meaning

Market segmentation is the method for achieving maximum market response from initial marketing resources by recognizing differences in the response characteristics of various parts of the market. In this sense market segmentation is the strategy of divide and conquer, i.e., dividing market in order to conquer them.

Market segmentation enables the marketers to give better attention to the selection of customers and offer an appropriate marketing mix for each chosen segment or a group of buyers having homogenous demand. Each subdivision or segment can be selected as a market target to be reached with a distinct marketing mix.

Market segmentation is defined as the segmentation or division of markets into various homogenous coups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in such a way that difference between buyers within each segment is as small as possible.

Market Segmentation
Market Segmentation

Market Segmentation- Definitions

In order to be a true market segment, the people or organizations in each segment must respond differently to variations in the marketing mix compared with those in other segments. This implies that for any classification, scheme to qualify as market segmentation, the segments must exhibit these behavioral response differences.

Paul Green and Donald Tull set four basic criteria for market segmentation:

1) The segments must exist in the environment (and not be a figment of the researcher’s imagination)

2) The segments must be identifiable (repeatedly and consistently)

3) The segments must be reasonable stable over time.

4) One must be able to efficiently reach segments (through specifically targeted distribution and communication initiatives).

As per SJ. Skinner, “Market segmentation is the process of dividing a total market into groups of consumers who have relatively similar product needs.”

The concept of market segment is based on the fact that the markets of commodities are not homogenous but they are heterogeneous. Market represents a group of customers having common characteristics but two customers are never common in their nature, habits, hobbies, income and purchasing techniques. They differ in their behavior and buying decisions. On the basis of these characteristics, customers having similar qualities are grouped in segments.

According to Philip Kotler, “Market segmentation is sub-dividing a market into distinct and homogeneous subgroups of customers, where any group can conceivably be selected as a target market to be met with distinct marketing mix”.

The main aim of market segmentation is to prepare separate programmes or strategies to all segments so that maximum satisfaction to consumers of different segments may be provided. In the words of Philip Kotler, “the purpose of market segmentation is to determine difference among them or marketing to them.”

Importance of Market Segmentation

Some of the importance of market segmentation are described below:

1. Co-Ordination of Product and Marketing Appeals:- As market segmentation presents an opportunity to understand the nature of the market, the seller can adjust his thrust to attract the maximum number of customers by various publicity media and appeals.

2. Better Position to Spot Marketing Opportunities:- As the producer can make a fair estimate of the volume of his sale and the possibilities of furthering his sales in the regions where response of the customers is poor.

3. Allocation of Marketing Budget:- It is on the basis of market segmentation that marketing budget is adjusted for a particular region or locality. Specific budget can be allocated according to different market segments.

4. Meeting the Competition Effectively:- It helps the producer to face the competition of his rivals effectively. The producer can adopt different strategies for different markets taking into account the rival’s strategies.

5. Effective Marketing Programme:- It helps the producer to adopt an effective marketing programme and serve the consumer better at comparatively lower cost. Diverse marketing programme can be attached for various segments.

6. Evaluation of Marketing Activities:- Market segmentation helps the manufacturer to find out and compare the marketing potentialities of the products. It helps to adjust production and using his resources in the most profitable manner. As soon as the product becomes obsolete, the product line could be diversified or discontinued.

Types of Market Segmentation

The step towards developing a segmentation strategy is to allocate base for segmenting the market. These are different variables used for this purpose.

The bases for market segmentation can be broadly classified into following groups:

1.Customer based segmentation. 2.Product related segmentation. 3.Competition related segmentation.

1. Customer Based Segmentation

Customer based segmentation further classifies as follows:

a. Geographic Location of Customers:

The starting point of all market segmentation is the geographic location of customers. It helps the firm in planning the marketing offer. The common method is to classify according to rural and urban, metro or non-metro markets. There are also other classifications like district and block markets.

But now with the development of technology and the advent of various modes of communication like TV, the customers in the rural areas are much more exposed and are more aware of the availability market. Today the rural customer buys the same branded product which is purchased by an urban customer.

b. Demographic Characteristics:

Factors like age, sex, income, occupation, family size, education; marital status is used singly or in combination to segment the market.

  • Age- Age is one of the most important factors for segmenting the market. The market the producer should know for what age group his product could be most suited so that he can plan his pricing policy, advertisement policy, marketing policy and strategy accordingly.
  • Income- The manufacturer should also bear in mind while preparing his marketing policy, the income of the prospective buyers of his product. Consumer’s needs, behaviour, persuasion etc. differ in different income groups.
  • Sex- Marketers may also be divided on the basis of sex i.e., male and female. Some products are exclusively produced for women while some others are for men. For example, Lip Stick is meant for a woman and on the other hand Shaving cream is only meant for men.
  • Occupation- Occupation is also another variable in segmenting the market. An individual’s employment does definitely affect the consumption; different categories of segments can be identified like doctors, consultants, entrepreneurs, lecturers etc.
  • Education- Education of the consumer also affects the preference and taste. The choice of literate person would obviously differ from that of an illiterate, as a literate he would be having a lot of exposure to the outside worlds where as an illiterate although exist the same environment would lack the ability to understand, when we look at all these aspects it is easy to indicate that education plays an important role. Accordingly based on education, the Indian Market can be segmented as illiterates, literates-high school, college and university educated.
  • Marital Status- Marital status is another demographics variable used. The behavioral of single and married people differs. Married people are more conservative than unmarried people.
  • Family Size and Structure- Markets may also be segmented on the basis of size of family Refrigerators and cookers are produced in different sizes to suit the needs of families of different sizes.

c. Psychographics Variables:

No two consumers act in the same manner though they two may be of the same age, from the same profession, same education and have same income. Each of the customers may have different attitudes because of personality and life-style differences. Markets are using psychographics variables to segment their market.

For example, Citibank, Diners card, Titan Watch, Savvy has used Psychographics variables to segment its market and distance itself from all others, including Femina, Savvy Women is identified as the highly liberated independent strong women, who have a definite plan in the society and to whom career would be extremely important.

d. Buyer Readiness:

Buyers are at different stages of readiness. People may be unaware, people who are aware but are not interested, people who are interested and desires to buy and those who will buy the product. The relative proportion of buyers at different stages will affect the marketer’s tasks.

2. Product Related Segmentation

Different customers use the same product in different situations for example; Rasna- for parties, unexpected guests, and a drink for quenching thirst etc. A market makes the product versatile so that it can be used in different situation. A consumer may buy different brands of the same product for different situations for e.g., saree for kitty party, work place.

3. Competition Based Segmentation

The success in marketing depends on the number of loyal customers. Customer loyalty therefore is an important factor to determine the competitive position of the firm.


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