Subject Name – Basics of Marketing
Topic Name – Market Segmentation
Student Name – Kashish Shaikh
Class – First Year MBA
Division – C
Academic Year – 2022-23
Roll No - 139
Market segmentation
Market segmentation is a marketing term that
refers to aggregating prospective buyers into
groups or segments with common needs and who
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.
Key Takeaways
• Market segmentation seeks to identify targeted groups of consumers
to tailor products and branding in a way that is attractive to the
group.
• Markets can be segmented in several ways such as geographically,
demographically, or behaviorally.
• Market segmentation helps companies minimize risk by figuring out
which products are the most likely to earn a share of a target market
and the best ways to market and deliver those products to the market.
• With risk minimized and clarity about the marketing and delivery of a
product heightened, a company can then focus its resources on efforts
likely to be the most profitable.
• Market segmentation can also increase a company's demographic
reach and may help the company discover products or services they
hadn't previously considered.
Understanding market segmentation
• Companies can generally use three criteria to identify different
market segments:
Homogeneity, or common needs within a segment
Distinction, or being unique from other groups
Reaction, or a similar response to the market
• For example, an athletic footwear company might have market
segments for basketball players and long-distance runners. As
distinct groups, basketball players and long-distance runners respond
to very different advertisements. Understanding these different
market segments enables the athletic footwear company to market its
branding appropriately.
• Market segmentation is an extension of market research that seeks to
identify targeted groups of consumers to tailor products
and branding in a way that is attractive to the group. The objective of
market segmentation is to minimize risk by determining which
products have the best chances of gaining a share of a target
market and determining the best way to deliver the products to the
market. This allows the company to increase its overall efficiency by
focusing limited resources on efforts that produce the best return on
investment (ROI).
Demographic segmentation
• Demographic segmentation is one of the simple, common methods of
market segmentation. It involves breaking the market into customer
demographics as age, income, gender, race, education, or occupation.
This market segmentation strategy assumes that individuals with
similar demographics will have similar needs.
• Example: The market segmentation strategy for a new video game
console may reveal that most users are young males with disposable
income.
firmographic segmentation
• Firmographic segmentation is the same concept as demographic
segmentation. However, instead of analyzing individuals, this strategy
looks at organizations and looks at a company's number of employees,
number of customers, number of offices, or annual revenue.
• Example: A corporate software provider may approach a
multinational firm with a more diverse, customizable suite while
approaching smaller companies with a fixed fee, more simple
product.
geographic segmentation
• Geographic segmentation is technically a subset of demographic
segmentation. This approach groups customers by physical location,
assuming that people within a given geographical area may have
similar needs. This strategy is more useful for larger companies
seeking to expand into different branches, offices, or locations.
• Example: A clothing retailer may display more raingear in their
Pacific Northwest locations compared to their Southwest locations.
Behavioral segmentation
• Behavioral segmentation relies heavily on market data, consumer
actions, and decision-making patterns of customers. This approach
groups consumers based on how they have previously interacted with
markets and products. This approach assumes that consumers prior
spending habits are an indicator of what they may buy in the future,
though spending habits may change over time or in response to global
events.
• Example: Millennial consumers traditionally buy more craft beer,
while older generations are traditionally more likely to buy national
brands.
Psychographic segmentation
• Often the most difficult market segmentation approach,
psychographic segmentation strives to classify consumers based on
their lifestyle, personality, opinions, and interests. This may be more
difficult to achieve, as these traits (1) may change easily and (2) may
not have readily available objective data. However, this approach may
yield strongest market segment results as it groups individuals based
on intrinsic motivators as opposed to external data points.
• Example: A fitness apparel company may target individuals based on
their interest in playing or watching a variety of sports.
Phase 2: Identify Customer Segments
• What segments are the company's competitors selling to?
• What publicly available information (i.e. U.S. Census Bureau data) is
relevant and available to our market?
• What data do we want to collect, and how can we collect it?
• Which of the five types of market segments do we want to segment
by?
Phase 3: Evaluate Potential Segments
• What risks are there that our data is not representative of the true
market segments?
• Why should we choose to cater to one type of customer over another?
• What is the long-term repercussion of choosing one market segment
over another?
• What is the company's ideal customer profile, and which segments
best overlap with this "perfect customer"?
Phase 4: Develop Segment Strategy
• How can the company test its assumptions on a sample test market?
• What defines a successful marketing segment strategy?
• How can the company measure whether the strategy is working?
Phase 5: Launch and Monitor
• Who are key stakeholders that can provide feedback after the market
segmentation strategy has been unveiled?
• What barriers to execution exist, and how can they can be overcome?
• How should the launch of the marketing campaign be communicated
internally?
Benefits of market segmentation
Marketing segmentation takes effort and resources to implement. However,
successful marketing segmentation campaigns can increase the long-term
profitability and health of a company. Several benefits of market
segmentation include;
• Increased resource efficiency. Marketing segmentation allows
management to focus on certain demographics or customers. Instead of
trying to promote products to the entire market, marketing segmentation
allows a focused, precise approach that often costs less compared to a broad
reach approach.
• Stronger brand image. Marketing segment forces management to
consider how it wants to be perceived by a specific group of people. Once
the market segment is identified, management must then consider what
message to craft. Because this message is directed at a target audience, a
company's branding and messaging is more likely to be very intentional.
This may also have an indirect effect of causing better customer experiences
with the company.
• Greater potential for brand loyalty. Marketing segmentation increases
the opportunity for consumers to build long-term relationships with a
company. More direct, personal marketing approaches may resonate with
customers and foster a sense of inclusion, community, and a sense of
belonging. In addition, market segmentation increases the probability that
you land the right client that fits your product line and demographic.
• Stronger market differentiation. Market segmentation gives a
company the opportunity to pinpoint the exact message they way to convey
to the market and to competitors. This can also help create product
differentiation by communicating specifically how a company is different
from its competitors. Instead of a broad approach to marketing,
management crafts a specific image that is more likely to be memorable and
specific.
• Better targeted digital advertising. Marketing segmentation enables a
company to perform better targeted advertising strategies. This includes
marketing plans that direct effort towards specific ages, locations, or habits
via social media.
limitations of market segmentation
The benefits above can't be achieved with some potential downsides. Here are
some disadvantages to consider when considering implementing market
segmentation strategies.
• Higher upfront marketing expenses. Marketing segmentation has the long-
term goal of being efficient. However, to capture this efficiency, companies
must often spend resources upfront to gain the insight, data, and research
into their customer base and the broad markets.
• Increased product line complexity. Marketing segmentation takes a large
market and attempts to break it into more specific, manageable pieces. This
has the downside risk of creating an overly complex, fractionalized product
line that focuses too deeply on catering to specific market segments. Instead
of a company having a cohesive product line, a company's marketing
mix may become too confusing and inconsistently communicate its overall
brand.
• Greater risk of misassumptions. Market segmentation is rooted in the
assumption that similar demographics will share common needs. This may
not always be the case. By grouping a population together with the belief
that they share common traits, a company may risk misidentifying the
needs, values, or motivations within individuals of a given population.
• Higher reliance on reliable data. Market segmentation is only as
strong as the underlying data that support the claims that are made. This
means being mindful of what sources are used to pull in data. This also
means being conscious of changing trends and when market segments may
have shifted from prior studies.
examples of market segmentation
• Market segmentation is evident in the products, marketing, and advertising
that people use every day. Auto manufacturers thrive on their ability
to identify market segments correctly and create products and advertising
campaigns that appeal to those segments.
• Cereal producers market actively to three or four market segments at a
time, pushing traditional brands that appeal to older consumers and
healthy brands to health-conscious consumers, while building brand
loyalty among the youngest consumers by tying their products to, say,
popular children's movie themes.
• A sports-shoe manufacturer might define several market segments that
include elite athletes, frequent gym-goers, fashion-conscious women, and
middle-aged men who want quality and comfort in their shoes. In all cases,
the manufacturer's marketing intelligence about each segment enables it to
develop and advertise products with a high appeal more efficiently than
trying to appeal to the broader masses.
what of market segmentation?
• Market segmentation is a marketing strategy in which select groups of
consumers are identified so that certain products or product lines can be
presented to them in a way that appeals to their interests.
Why is market segmentation important?
• Market segmentation realizes that not all customers have the same
interests, purchasing power, or consumer needs. Instead of catering to all
prospective clients broadly, market segmentation is important because it
strives to make a company's marketing endeavors more strategic and
refined. By developing specific plans for specific products with target
audiences in mind, a company can increase its chances of generating sales
and being more efficient with resources.
what are the types of market segmentation?
• Types of segmentation include homogeneity, which looks at a segment's
common needs, distinction, which looks at how the particular group stands
apart from others, and reaction, or how certain groups respond to the
market.
What are some market segmentation strategies?
• Strategies include targeting a group by location, by demographics—such as
age or gender—by social class or lifestyle, or behaviorally—such as by use or
response.
What is an example of market segmentation ?
• Upon analysis of its target audience and desired brand image, Crypto.com
entered into an agreement with Matt Damon to promote their platform and
cryptocurrency investing. With backdrops of space exploration and
historical feats of innovation, Crypto.com's market segmentation targeted
younger, bolder, more risk-accepting individuals.
The bottom line
• Market segmentation is a process companies use to break their potential
customers into different sections. This allows the company to allocate the
appropriate resource to each individual segment which allows for more
accurate targeting across a variety of marketing campaigns.
Thank You
