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Services Markets Segmentation

Market segmentation is the process of aggregating customers with similar wants, needs, preferences, or buying behaviour.

Services Markets Segmentation


Market segmentation is the process of aggregating customers with similar wants, needs, preferences, or buying behaviour. Market targeting involves evaluating the attractiveness of the segments and selecting ones the firm will serve. In other words, segmentation is the analysis conducted about customers and targeting is the managerial decision about whom to serve. Both of these are required for effective market positioning, which involves establishing he competitive position for the service in the mind of the customer and creating or adapting the service mix to fit the position.


The segmentation process, shown in the following figure is concerned to divide a heterogeneous follows four broad steps:


The definition of the market to be addressed.


The identification of alternative bases for segmentation

An examination of these bases and the choice of the best base or bases for segmentation.


The identification of individual market segments, an assessment of their attractiveness and the selection of specific target segments.



Once the market segment has been selected, the process of target marketing involves developing a positioning for the target segments selected and then developing a marketing mix for each target market.

Fig. 5.1 Services market segmentation


Definition of Relevant Market


The definition of the relevant market to be addressed involves specifying the customer group to which the company is seeking to market its services. This can be a broad group such as retail customers for a supermarket in a given geographic region, or a much more specific group which can be further segmented.


Successful market segmentation means satisfying the needs of existing and potential customers in a clearly defined market. This involves understanding customer attitudes, and customer preferences, as well as the benefits which are sought. Definition of the target market and its requirements is the first essential step in the segmentation process.

Bases of Segmentations


Market segments are formed by grouping customers who share common characteristics that are in some way meaningful to the design, delivery, promotion, or pricing of the service.

Demographics and socio-economic segmentation


Demographic segmentation includes a number of factors including sex, age, family size etc. Socio-economic variables may also be considered here, including income education, social class and ethnic origins. Many retail stores target different customer group.


Psychographic segmentation


This form of segmentation cannot be explained in clearly defined quantitative measures it is concerned with people‟s behaviour and ways of living..


Geographic segmentation


Geographic segmentation divides customers according to where they live or work and correlates this with other variables.


A geographic analysis is a relatively simple means of segmenting a market, it is frequently one of the first segmentation variables to be considered by a service firm Geographic segmentation dimensions are typically grouped into market scope factor and geographic market measures.


1.                             Market scope factors include a consideration of where the markets to be served are located: this maybe local, national, regional or global.


2.                             Geographic market measures include examination of population density, climate-related factors, and standardized market areas. Geographic measures are especially important in the selection of specialized mass communications media.


Benefit segmentation


The segmentation variables listed above focus on the personal attributes of the customer. Segmentation can can also be carried out on the basis of the customer‟s response.


Usage segmentation


Usage segmentation focuses on the type and extent of usage patterns. Consumers are typically divided into heavy users, medium users, occasional users or non-users of the service being considered.


Promotional response segmentation


Promotional response segmentation considers how customers respond to a particular form of promotional activity. This may include response to advertising, sales promotions, in-store displays and exhibitions.


Segmentation by service


One area which has received relatively little attention is the consideration of how customers respond to varying service offerings..


Segmenting markets by service involves addressing the following issues:


Can groupings of customers be identified with similar service requirements?


Can we differentiate our service offering?


Do all our products require the same level of service?


The types of segmentation outlined above are illustrative of the main forms of segmentation used by services companies. they are, however, by no means exhaustive. The segmentation process should result in one of four basic decisions being reached:


1.                 The service firm may be decide to target one segment of the market.


2.                 The service firm may decide to target several segments and so will develop different marketing mix plans for each segment.


Management may decide not to segment the market bout to offer the service to he mass market. This may be appropriate if the market is very small and single portion would not be profitable. It also may be the case that the service company dominates the market so that targeting a few segments would not increase volume or profit.


4.                             Analysis may show that there is no viable market niche for the service offering.


The relevance of market segmentation if now being increasingly recognized in the services sector.


Positioning and Differentiation of Services


Services firms are not identifying their key market segments and then determining how they wish consumers to perceive both their company and its products and services. Positioning can be defined as follows:


“Positioning is concerned with the identificaifferentiated advantage which makes the organization‟s produ those of its competitors in the mind of its ta



It is therefore important to select distinguishing characteristics which satisfy the following criteria:


Importance –the difference is highly valued to a sufficiently large market


Distinctiveness –the difference is distinctly superior to other offering which are available.


Communicability –it is possible to communicate the difference in a simple and strong way.


Superiority –the difference is not easily copied by competitors.


Affordability –the target customers will be able and willing to pay for the difference. Any additional cost of the distinguishing characteristic(s) will be perceived as sufficiently valuable to compensate for any additional cost.


Profitability- the company will achieve additional profits as a result of introducing the difference.

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