By N2H

Market Segmentation

October 24, 2007

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Market Segmentation
Market segmentation is the process of subdividing a market into distinct subsets of customers that behave in the same way or have similar needs.

These individuals or organizations in each subset or market segment have common needs and similar responses to a particular marketing effort.

Business use thus information to determine or decide which or what segments of the market they can serve most profitably while non-profit organization use this info to determine what segments they can serve most efficiently and effectively.

Strategies for segmentation
There are two types of strategies for segmentation. These are:

Single product Strategies (Niche Marketing)
Multi-product Strategies (Differentiated Marketing)

Single Product Strategy
When an organization has a single product or service, it may carry out a survey to establish which categories of individuals or organization are most likely to be interested in the product. Thus the organization will focus on that single product segment and tailor the elements of the marketing mix to attract that segment (niche marketing)

Niche marketing can be done successfully with a relatively small investment thus its an attractive strategy for small organizations.

It also allows a firm to achieve strong sales from loyal customers by specializing in serving their specific needs.Niche marketing is however relatively rising in that a change in demand of the single market segment can cause the organization’s overall sales to plummet.

Multiproduct Strategies (Differentiated Marketing)
This happens when organizations sell multiple versions of a product, each designed to appeal to different market segment. In variations of this strategy, organizations adjust other elements of the marketing mix to reach several market segments e.g. an organization may use different advertising messages and media to reach customers in different market segments.

By meeting the needs of various segments, a differentiated strategy should produce great sales.

However serving a variety of market segments is more difficult and expensive than producing a single product intended for everyone.

Basis for segmenting consumer markets. In allowing a basis for segmentation, the marketer relies on this or her existing knowledge about the market, the current trends in purchases and his/her west judgement.

For consumer products, marketers can be two basic categories of segmentation. They can segment the market according to characteristics that describe consumers. (such as demographic or psychographic data).

They may also use segmentation based on consumers relationship to the product (e.g. what benefits they are working for, how much they buy e.t.c.)

Demographic Segmentation
This is the most common way to segment the consumer market. It involves division of the market on the basis of population characteristics.

It segments consumers according to variables such as gender, age, race or ethnicity, income level, occupation, education level and threshold size and consumption.

Segmentation by Gender
This is appropriate when the product is likely to appeal more to one gender than the other or when members of each gender are likely to respond differently to other aspects of a marketing mix.

Segmentation by Age
People’s needs and taste change as they grow older. Marketers are interested in knowing which age groups are increasing in population and which are declining.
Segmentation by race/ethnicity
This is based on segmenting the markets according to race or ethnic group taking into consideration their behaviour and traditions.

Segmentation by socioeconomic variables
Segmentation by income levels helps marketers determine which consumers are likely to respond to a particular combination, price, style and quality. Presumably low income earners (consumers will be especially interested in bargains where as, high income earners will be willing to spend extra for prestigious or high quality products)

Segmentation by income levels
helps marketers determine which consumers are likely to respond to a particular combination, price, style and quality. Presumably low income earners (consumers will be especially interested in bargains where as, high income earners will be willing to spend extra for prestigious or high quality products)

Segmentation by family values
Finally values or households size, composition or stage in the family lifecycle. Example large families are likely to be attracted by big boxes of laundry detergents e.t.C

Geographic Segmentation
The market segmentation, marketers can compare the size and needs of markets in various countries, then selecting countries that can be profitably served e.g. People selling high-tech electronic equipment to organizations would want to target countries that have the reliable electricity and trained personnel necessary to use the equipment.

Segmentation based on Customer type.
Different types of buyers will want different types of products and services. Different types of users within the organization often have different needs and preferences.

Segmentation by size
One can segment different types of organization by looking at their size. A big organization tends to place bigger orders.

Segmentation by end user.
The way customers will use a particular product is another basis for segmenting organizational markets e.g. plastics are used for packaging industrial products and consumer products.

In general, to carry out market segmentation an organization has to identify what the possible market segments are then gather information about the level of demand in each segment. After that the organization decides which segment (s) it can best serve.

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