Market segmentation was first mentioned in the literature in 1956 by American professor Mr. Wendell R. Smith. Marketing Segmentation involves partitioning a given market into similar customer groupings for which uniform marketing strategies can be used. In segmentation. the marketer’s task is to identify the appropriate number and nature of segments and decide which one to target. This allows brands and companies to tailor your approach to meet each group’s needs. Market Segmentation is the essence of strategic marketing. The segmentation of your market is the first step in the STP phase.
Basis of Segmentation
You can segment the market using a variety of parameters, including:
Demographic variables are popular basis for segmentation as they can be easily associated with the customer needs and wants and also such variables are easy to measure. Some of the demographic variables to segment markets are:
- Age and Life-cycle stage
- Life Stage
It divides the market into graphical units such as nations, state, regions, countries, cities, neighborhoods. The main purpose is to operate in single or multiple areas considering the local variations of the selected areas.
Psychographics is the science of using psychology and demographics to better understand consumers. In this segmentation, buyers are divided into segments on the basis of personality traits, lifestyle, or values. Demographic data explains “who” your potential consumer is, psychographic data explains “why” they purchase. VALS Framework is one of the popular psychographic measurement tool. VALS Framework groups eight segments; Thinkers, Achievers, Experiencers, Believers, Strivers and Makers.
In this segmentation, marketers divide buyers into groups on the basis of their knowledge of , attitude towards, use of, or response to a product. Some of the behavioral segmentation variables are;
- Needs and Benefits
- Decision Roles
- User and usage-related variables
When you divide the market into different segments and then target your marketing on a particular segment based on the knowledge you’ve learned about that segment, you are much more likely to be effective than if you just developed a one-size-fits-all generic marketing strategy.
Characteristics of Segmentation
Any division in group can be consider as segmentation. However, not all the segmentation serves the purpose. Effective segmentation has the following characteristics;
- Measurable: The size, purchasing power, and characteristics of the segments can be measured.
- Sustainable: The segments need to be large and profitable enough to serve.
- Accessible: The segment can be effectively reached and serve.
- Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix element and program.
- Actionable: Effective programs can be formulated for attracting and serving the segments.
Benefits of Market Segmentation
- Improves Campaign Performance
- Informs product improvement and development
- Reveals potential areas for expansion
- Improves business focus
- Informs effective business decision
- Optimizes cost-efficiency and resource management
Some real-life examples of market segmentation.
- Demographic Segmentation:
- Mercedes or Ferrari has income based segmentation
- Toothpaste brands life-cycle based segmentation
- Gillette has gender based segmentation
- Geographic Segmentation:
- McDonalds and Coca Cola have geographical segmentation.
- Citibank provides different mixes of services depending upon its neighborhood.
- Most of the fast-food chain operates differently in different nations
- Psychographic Segmentation:
- Specialization focused Luxury Mobile Manufacturing Brand
- Car companies focuses on psychographic segmentation.
- Behavioral Segmentation:
- Apple customers are brand conscious and loyal and Apple has behavioral segmentation.
- BabyCenter UK follows behavioral segmentation.