A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
Generally
three criteria can be used to identify different market segments:
1)
Homogeneity (common needs within segment)
2)
Distinction (unique from other groups)
3)
Reaction (similar response to market)
Q:
Why Segment a Market?
Before
marketing the products or services, one needs to understand their customers,
and find ways and means to satisfy their wants. This is imperative to stay
ahead of the competition and build the brand. This is done through extensive
market research. Although it is not possible to satisfy individual needs and
understand all of them, a clearly defined market segmentation strategy will
help create a market to cater to groups of individuals that will make economic
sense to mass produce and distribute. The concept of target market segmentation
strategy also falls under this blanket, except the former recognizes and
understands the diversity of customers and provides them with products and
services that suit their specific requirements. A successful market strategy
strives to understand different segments and its different needs; works on the
exhibited common wants; and responds immediately.
Q: Strategies for Market
Segmentation
How
a market is segmented is based on certain variables. Variables used for
segmentation include; behavioral, demographic, psychographic, and geographical
differences.
Psychographic
Segmentation
Segmenting
people according to their lifestyle and values, and how they translate into consumption
or purchases of products or services is what psychographic segmentation is all
about. How one's interest, opinions, values, attitude, and the activities they
perform, affect their choices and why a group of people would lean towards one
product more than others. A high status would translate into an expensive
flying habit, while a thrift value will translate into an economy flight.
Geographical
Segmentation
Geographical
segmentation is done by dividing people (markets) into different geographical
locations. The country, state, or neighborhood, the king of gentry, climate,
size of a place segmented into size of its age wise population, etc., all play
a role in devising market strategies. This helps the producer and the marketers
to understand what will sell and what won't. For example, a market for winter
wear would definitely not work in warm regions.
Demographic
Segmentation
Demographic
segmentation refers to a wide study of potential customers. While marketing a
product, many variables like age, gender, education, income, family size,
occupation, socioeconomic status, culture, religion, language, and nationality
are taken into account. There are many instances where such segmentation has
worked very profitably. This segmentation plays a vital role in determining
whether a product can be mass marketed or designed for a specific clientèle.
Behavioral
Segmentation
Behavioral
segmentation is based on the customer's needs and subsequent reaction to those
needs or towards the purchase of intended products and/or services. This study
is conducted on all variables that are closely related to the product itself,
like loyalty to a particular brand, cost-effectiveness in terms of benefits and
usage, circumstances responsible for the purchase, whether the customer is a
regular, a first timer, or and has the potential to become a customer, and
whether the readiness to buy is linked to status.
Q: Theory of Market Segmentation
A
modern theory pertaining to interest rates stipulating that there is no
necessary relationship between long and short-term interest rates. Furthermore,
short and long-term markets fall into two different categories. Therefore, the
yield curve is shaped according to the supply and demand of securities within
each maturity length.
Also called the "Segmented Markets Theory",
this idea states that most investors have set preferences regarding the length
of maturities that they will invest in. Market segmentation theory maintains
that the buyers and sellers in each of the different maturity lengths cannot be
easily substituted for each other. An offshoot to this theory is that if an
investor chooses to invest outside their term of preference, they must be
compensated for taking on that additional risk. This is known as the Preferred
Habitat Theory.
Example:
Market
segmentation theory suggests that
the behavior of short-term interest rates is wholly unrelated to the behavior
of long-term interest rates. In other words, a change in one is in no way
indicative of an immediate change in the other. Both must be analyzed
independently. Accordingly, the yield curve reflects the market supply and demand for Treasury bonds of a certain maturity only.
Why It Matters:
Market segmentation theory
suggests that it is impossible to predict future interest rate outcomes based
on short-term interest rates. Moreover, long-term interest rates (for example,
the rate of the 30-year Treasury bond) only express market expectations and do not indicate that a definite
outcome will occur.
Q: Types of Market
Segmentation.
Geographic Segmentation
Geographical
segmentation is done by dividing people (markets) into different geographical
locations. The country, state, or neighborhood, the king of gentry, climate,
size of a place segmented into size of its age wise population, etc., all play
a role in devising market strategies. This helps the producer and the marketers
to understand what will sell and what won't. For example, a market for winter
wear would definitely not work in warm regions.
Distribution Segmentation
Different
markets can be reached through different channels of distribution. For example,
a company might segment the “tick and flea collar” market by selling the
product to supermarkets under one brand name, to mass merchandisers under
another brand, to pet stores under another brand name, and to veterinarians
under yet another brand name. This type of distributional segmentation is
common, especially among small companies that grant each channel a unique brand
to gain distribution within that channel.
Media
Segmentation
While
not common, media segmentation is sometimes a possibility. It is based on the
fact that different media tend to reach different audiences. If a brand pours
all of its budget into one media, it can possibly dominate the segment of the
market that listens to that radio station or reads that magazine. Media
segmentation is most often practiced by companies that have some control over
the media and can somehow discourage competitors from using that media.
Price Segmentation
Price
segmentation is common and widely practiced. Variation in household incomes
creates an opportunity for segmenting some markets along a price dimension. If
personal incomes range from low to high, the reasoning goes, then a company
should offer some cheap products, some medium-priced ones, and some expensive
ones. This type of price segmentation is well illustrated by the range of
automotive brands marketed by General Motors historically.
Demographic Segmentation
Gender,
age, income, housing type, and education level are common demographic
variables. Some brands are targeted only to women, others only to men. Music
downloads tend to be targeted to the young, while hearing aids are targeted to
the elderly. Education levels often define market segments. Demographic
segmentation almost always plays some role in a segmentation strategy.
Time Segmentation
Time
segmentation is less common but can be highly effective. Some stores stay open
later than others, or stay open on weekends. Some products are sold only at
certain times of the year (e.g., Christmas cards, turkeys, fireworks, cranberry
sauce). Chili is marketed more aggressively in the fall, with the onset of
cooler weather. Football is played in the fall, basketball in the winter and
spring, and baseball in the spring and summer (or at least this used to be the
pattern). The Olympics come along every two years. Department stores sometimes
schedule midnight promotional events. The time dimension can be an interesting
basis for segmentation.
Psychographic or Lifestyle Segmentation
Segmenting
people according to their lifestyle and values, and how they translate into
consumption or purchases of products or services is what psychographic
segmentation is all about. How one's interest, opinions, values, attitude, and
the activities they perform, affect their choices and why a group of people
would lean towards one product more than others. A high status would translate
into an expensive flying habit, while a thrift value will translate into an
economy flight.
There are four
main types of segmentation used in market research analysis: a priori, usage,
attitudinal and need.
A priori (most commonly used)
a priori is defined
as relating to knowledge that proceeds from theoretical deduction rather than
from observation or experience. For purposes of market research analysis this
means making certain assumptions about different groups that are generally
accepted as pertaining to that group. For example, deducing that adults
over 50 are not as tech savvy as twenty somethings is a safe assumption based
on the reasoning that high tech devices were not as widely available to the
older generation than they are to the younger.
Usage Segmentation (also
used frequently)
Usage
segmentation is completed either by decile or pereto analysis. The former
splits the groups into ten equal parts and the latter distributes according to
the top 20% and the remaining 80%. Usage segmentation helps to drill down more
deeply then a priori because it indicates which priori group is the heaviest
user of your product.
Attitudinal (Cluster analysis)
Using cluster
analysis to create customer psychological profiles is difficult because it is
limited by the input data used. Demographic data is the least helpful,
whereas preference data (scaling) is better suited toward this type of
analysis.
Needs Based Segmentation
Needs based
segmentation is the concept that the market can be divided based on customer
need. This type of analysis is used to develop products that sell rather
than trying to sell products a business developed.
Needs based
segmentation uses conjoint analysis to separate the groups according to
functional performance. Using cluster analysis, its goal is to determine
the driving forces behind the performance data.
Q: Common Mistakes In Market Segmentation
Segmentation
studies tend to be large and complicated, so it’s easy for errors and mistakes
to be made. Some of the most common mistakes:
1. Segmenting a segment. For example, someone might want to segment the
market for widgets among 18- to 24-year-olds who live in
2.
Overlooking
the “universals.” Many
attitudinal statements in the questionnaire will not show up in the final
segments, because they tend to be the same across all segments. Statements that
everyone agrees with, or everyone disagrees with (we call them “universals”)
cannot explain much in the multivariate analyses. Variables have to move up and
down for the multivariate analysis to work. The highest rated variables, and
the lowest rated, are likely to fall out of the multivariate analyses.
3. Creating too many segments. There is a practical limit to the size of segments
that companies can effectively target. If you create more than four or five
market segments, you run the risk that the resulting segments will be too small
to target, at least by mass media. This is not always true, but it is a good
rule of thumb.
4.
Targeting
all segments. So you have
carefully subdivided your target market into five mutually exclusive
psychographic segments, and your boss tells you to develop a marketing plan to
attack each segment. If all of your marketing is direct mail, and you can
identify the addresses that belong to each segment, then you can attack all
segments (assuming your product is relevant to all segments). But, if you use
broadcast media in marketing your product, it is very difficult to target
multiple segments because of media “spillover.”
5. Confusing the results. Segmentation studies are large and complicated, with
enormous amounts of data. It is easy to get lost in this treasure trove of
answers and come up with confusing and baffling results.
6.
Overlooking
the basics. The dazzle and
glitter of the advanced, rocket-science multivariate analyses attract
everyone’s attention. No one ever opens up the crosstabs and looks at the answers to the hundreds of
questions asked.
Q: Basis of Market Segmentation
Gender
The
marketers divide the market into smaller segments based on gender. Both men and
women have different interests and preferences, and thus the need for
segmentation. A woman would not purchase a product meant for males and vice a
versa. The segmentation of the market as per the gender is important in many
industries like cosmetics, footwear, jewellery and apparel industries.
Age Group
Division
on the basis of age group of the target audience is also one of the ways of
market segmentation.
The
products and marketing strategies for teenagers would obviously be different
than kids.
Age
group (0 - 10 years) - Toys, Nappies, Baby Food, Prams
Age
Group (10 - 20 years) - Toys, Apparels, Books, School Bags
Age
group (20 years and above) - Cosmetics, Anti-Ageing Products, Magazines,
apparels and so on
Income
Marketers
divide the consumers into small segments as per their income. Individuals are
classified into segments according to their monthly earnings.
The
three categories are:
High
income Group
Mid
Income Group
Low
Income Group
Stores
catering to the higher income group would have different range of products and
strategies as compared to stores which target the lower income group.
Marital Status
Market
segmentation can also be as per the marital status of the individuals. Travel
agencies would not have similar holiday packages for bachelors and married
couples.
Occupation
Office
goers would have different needs as compared to school / college students.
A
beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as
it caters specifically to the professionals.
Q: Criteria for effective segmentation
a) Homogeneous within,
b) Heterogeneous between,
c) Substantial – should be
large enough,
d) Actionable
e) Accessible,
f)
Measurable
Q: Benefits of Segmentation
a) Development marketing mix,
b) Store location decisions,
c) Understand customer behavior,
d) Merchandising decision,
e) Promotional Campaigns,
f) Positioning.