Market Segmentation

Market Segmentation

Definition

Dividing a market into distinct groups with distinct needs, characteristics, or

Dividing a big heterogeneous market into small homogenous unit. Process of dividing the total market for a good or service into several smaller, internally homogeneous groups

Market segmentation is the identification of portions of the market that are different from one another. Segmentation allows the firm to better satisfy the needs of its potential customers.

Market segments for Bicycles

Process of Market Segmentation

Identify wants within a market

Identify characteristics that distinguish the segments Determine size and satisfaction

1.Fetaures market segmentation

It must be identifiable. It must be accessible.

It must be optimum in size. It must be profitable.

It must be durable.

It must be compatible.

2.Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated against the following criteria:

Identifiable: the differentiating attributes of the segments must be measurable so that they can be identified.

Accessible: the segments must be reachable through communication and distribution channels.

Substantial: the segments should be sufficiently large to justify the resources required to target them.

Unique needs: to justify separate offerings, the segments must respond differently to the different marketing mixes.

Durable: the segments should be relatively stable to minimize the cost of frequent changes.

A good market segmentation will result in segment members that are internally homogenous and externally heterogeneous; that is, as similar as possible within the segment, and as different as possible between segments.

3.Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

Geographic Demographic Psychographic Behavioralistic

4.Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

Region: by continent, country, state, or even neighborhood

Size of metropolitan area: segmented according to size of population Population density: often classified as urban, suburban, or rural

Climate: according to weather patterns common to certain geographic regions

5.Demographic Segmentation

Some demographic segmentation variables include:

Age Gender

Family size

Family lifecycle

Generation: baby-boomers, Generation X, etc. Income

Occupation Education Ethnicity Nationality Religion Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full- nest, empty-nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III depending on the age of the children.

6.Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:

Activities

Interests

Opinions Attitudes Values

7.Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic variables include:

Benefits sought Usage rate

Brand loyalty

User status: potential, first-time, regular, etc. Readiness to buy

Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the product itself. It is a fairly direct starting point for market segmentation.

8.Bases for Segmentation in Industrial Markets

In contrast to consumers, industrial customers tend to be fewer in number and purchase larger quantities. They evaluate offerings in more detail, and the decision process usually involves more than one person. These characteristics apply to organizations such as manufacturers and service providers, as well as resellers, governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial markets. Industrial markets might be segmented on characteristics such as:

Location

Company type

Behavioral characteristics

Location

In industrial markets, customer location may be important in some cases. Shipping costs may be a purchase factor for vendor selection for products having a high bulk to value ratio, so distance from the vendor may be critical. In some industries firms tend to cluster together geographically and therefore may have similar needs within a region.

Company Type

Business customers can be classified according to type as follows:

Company size Industry

Decision making unit Purchase Criteria

9.Behavioral Characteristics

In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such behavioral characteristics may include:

Usage rate

Buying status: potential, first-time, regular, etc. Purchase procedure: sealed bids, negotiations, etc.