what is market segmentation?
Market segmentation is that the process of dividing a target market into smaller, more defined categories. It segments customers and audiences into groups that share similar characteristics like demographics, interests, needs, or location.
Market segmentation may be a process of dividing a heterogeneous market into relatively more homogenous segments supported by certain parameters like geographic, demographic, psychographic, and behavioral.
it’s the activity of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as segments) supported by some sort of shared characteristics.
In dividing or segmenting markets, researchers typically search for common characteristics like shared needs, common interests, similar lifestyles, or maybe similar demographic profiles. the general aim of segmentation is to spot high yield segments – that’s,
those segments that are likely to be the foremost profitable or that have growth potential – in order that these are often selected for special attention (i.e. become target markets).
many various ways to segment a market are identified. Business-to-business (B2B) sellers might segment the market into different types of companies or countries.
While business-to-consumer (B2C) sellers might segment the market into demographic segments, lifestyle segments, behavioral segments, or other meaningful segments.
the approach highlights the three areas of decision-making
Market segmentation assumes that different market segments require different marketing programs – that’s, different offers, prices, promotion, distribution, or some combination of selling variables.
Market segmentation isn’t only designed to spot the foremost profitable segments, but also to develop profiles of key segments so as to raised understand their needs and buy motivations.
Insights from segmentation analysis are subsequently wont to support marketing strategy development and planning. Many marketers use the S-T-P approach; Segmentation → Targeting → Positioning to supply the framework for marketing planning objectives.
That is, a market is segmented, one or more segments are selected for targeting, and products or services are positioned in a way that resonates with the chosen target market or markets. More Info
Market segmentation strategy
A key consideration for marketers is whether or not to segment or to not segment. counting on company philosophy, resources, product type, or market characteristics,
a business may develop an undifferentiated approach or differentiated approach. In an undifferentiated approach, the marketer ignores segmentation and develops a product that meets the requirements of the most important number of buyers.
during a differentiated approach, the firm targets one or more market segments, and develops separate offers for every segment.
Even simple products like salt, which could be considered as commodities, are highly differentiated in practice.
In consumer marketing, it’s difficult to seek out samples of undifferentiated approaches. Even goods like salt and sugar, which were once treated as commodities,
are now highly differentiated. Consumers can buy a spread of salt products; cooking salt, salt , sea salt, rock salt, kosher salt, mineral salt, herbal or vegetable salts, iodised salt, salt substitutes, and lots of more.
Sugar also comes in many various types – cane sugar, beet sugar, raw sugar, white sugar , sugar , castor sugar , sugar lumps, powdered sugar (also referred to as milled sugar), syrup , carbohydrate,
and a plethora of sugar substitutes including smart sugar which is actually a mix of pure sugar and a sugar substitute. Each of those product types is meant to satisfy the requirements of specific market segments.
carbohydrate and sugar syrups, for instance , are marketed to food manufacturers where they’re utilized in the assembly of conserves, chocolate, and food .
Sugars marketed to consumers appeal to different usage segments – sugar is primarily to be used on the table, while castor sugar and powdered sugar are primarily designed to be used in home-baked goods. Read more market segmentation
7 Benefits of Market Segmentation
The importance of market segmentation is that it makes it easier to focus on marketing efforts and resources on reaching the foremost valuable audiences and achieving business goals.
Market segmentation allows you to urge to understand your customers, identify what’s needed in your market segment, and determine how you’ll best meet those needs together with your product or service. This helps you design and execute better marketing strategies from top to bottom.
1. Create stronger marketing messages
When you know whom you’re lecture, you’ll develop stronger marketing messages. you’ll avoid generic, vague language that speaks to a broad audience. Instead, you’ll use direct messaging that speaks to the requirements, wants, and unique characteristics of your audience.
2. Identify the foremost effective marketing tactics
With dozens of selling tactics available, it is often difficult to understand what is going to attract your ideal audience. Using different types of market segmentation guides you toward the marketing strategies which will work best.
once you know the audience you’re targeting, you’ll determine the simplest solutions and methods for reaching them.
3. Design hyper-targeted ads
On digital ad services, you’ll target audiences by their age, location, purchasing habits, interests, and more.
once you use market segmentation to define your audience, you recognize these detailed characteristics and may use them to make simpler, targeted digital ad campaigns.
4. Attract (and convert) quality leads
When your marketing messages are clear, direct, and targeted they attract the proper people. You attract ideal prospects and are more likely to convert potential customers into buyers.
5. Differentiate your brand from competitors
Being more specific about your value propositions and messaging also allows you to face out from competitors. rather than blending in with other brands, you’ll differentiate your brand by that specialize in specific customer needs and characteristics.
6. Build deeper customer affinity
When you know what your customers want and wish, you’ll deliver and communicate offerings that uniquely serve and resonate with them.
This distinct value and messaging results in stronger bonds between brands and customers and creates lasting brand affinity.
7. Identify niche market opportunities
Niche marketing is the process of identifying segments of industries and verticals that have an outsized audience that will be served in new ways.
once you segment your target market, you’ll find underserved niche markets that you simply can develop new products and services for.
Identifying the market to be segmented
The marketplace for a given product or service referred to as the market potential or the entire addressable market (TAM). as long as this is often the market to be segmented, the analyst should begin by identifying the dimensions of the potential market. For existing products and services, estimating the dimensions and value of the market potential is comparatively straightforward. However, estimating the market potential are often very challenging when a product or service is completely new the market and no historical data on which to base forecasts exists.
A basic approach is to first assess the dimensions of the broad population, then estimate the share likely to use the merchandise or service and eventually to estimate the revenue potential.
To estimate market size, a marketer might evaluate the adoption and growth rates of comparable technologies (historical analogy method).
Another approach is to use a historical analogy. for instance , the manufacturer of HDTV might assume that the amount of consumers willing to adopt high definition TV are going to be almost like the adoption rate for color television . To support this sort of study , data for household penetration of TV, Radio, PCs, and other communications technologies is quickly available from government statistics departments. Finding useful analogies are often challenging because every market is exclusive . However, analogous product adoption and growth rates can provide the analyst with benchmark estimates, and may be wont to cross-validate other methods which may be wont to forecast sales or market size.
A more robust technique for estimating the market potential is understood because the Bass diffusion model, the equation that follows:
N(t) – N(t−1) = [p + qN(t−1)/m] × [m – N(t−1)]
N(t)= the number of adopters within the current period of time, (t)
N(t−1)= the number of adopters within the previous period of time, (t-1)
p = the coefficient of innovation
q = the coefficient of imitation (the social contagion influence)
m = an estimate of the number of eventual adopters
The major challenge with the Bass model is estimating the parameters for p and q. However, the Bass model has been so widely utilized in empirical studies that the values of p and q for quite 50 consumer and industrial categories are determined and are widely published in tables. the typical value for p is 0.037 and for q is 0.327.
Bases for segmenting consumer markets
Major bases used for segmenting a market
A major step within the segmentation process is that the selection of an appropriate base. during this step, marketers are trying to find a way of achieving internal homogeneity (similarity within the segments), and external heterogeneity (differences between segments). In other words, they’re checking out a process that minimises differences between members of a segment and maximises differences between each segment. additionally , the segmentation approach must yield segments that are meaningful for the precise marketing problem or situation. for instance , an individual’s hair color could also be a relevant base for a shampoo manufacturer, but it might not be relevant for a seller of monetary services. Selecting the proper base requires an honest deal of thought and a basic understanding of the market to be segmented.
In reality, marketers can segment the market using any base or variable as long as it’s identifiable, substantial, responsive, actionable and stable.
Identifiability refers to the extent to which managers can identify or recognise distinct groups within the marketplace
Substantiality refers to the extent to which a segment or group of consumers represents a sufficient size to be profitable. this might mean sufficiently large in number of individuals or in purchasing power
Accessibility refers to the extent to which marketers can reach the targeted segments with promotional or distribution efforts
Responsiveness refers to the extent to which consumers during a defined segment will answer marketing offers targeted at them
Actionable – segments are said to be actionable once they provide guidance for marketing decisions.
For example, although dress size isn’t a typical base for segmenting a market, some fashion houses have successfully segmented the market using women’s dress size as a variable. However, the foremost common bases for segmenting consumer markets include: geographics, demographics, psychographics, and behaviour. Marketers normally select one base for the segmentation analysis, although, some bases are often combined into one segmentation with care. for instance , geographics and demographics are often combined, but other bases are rarely combined. as long as psychographics includes demographic variables like age, gender, and income also as attitudinal and behavioural variables, it makes little logical sense to mix psychographics with demographics or other bases. Any plan to use combined bases needs careful consideration and a logical foundation.
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