Market Segmentation

We have already defined what a market is but let us look again at that definition. A market is a group of actual or potential customers for a particular product. More precisely, a market is a group of individuals or organizations that may want the good or service

being offered for sale and that meet these three additional criteria :

1. They have the ability or purchasing power to buy the product being offered.

2. They have the willingness to spend money or exchange other resources to obtain the product.

3. They have the authority to make such expenditures.

Economics textbooks often give the impression that all consumers are alike. Economists frequently, draw no distinctions among different types of buyers, as long as they have a willingness and an ability to buy.

Markets are not homogenous & they are made of several segments. A market is the aggregate of consumers of a given product and consumers vary in their characteristics buying behavior. It is feasible to disaggregate the consumers into segments in such a manner that in needs characteristics & buying behavior, the members vary significantly among segments.

Segmentation benefits the marketer as:-

(1) Facilitates Proper Choice of Target Market: Segmentation helps in distinguishing one customer group from another & thereby enable him to decide which segment should form his target market.

(2) Facilitates Taping of the Market, Adopting the Offer to the Target: Segmentation also enables the marketer to crystallize the needs of the target buyers. It also helps him to generate an accurate prediction of the likely responses from each segment of the target buyers.

Eg. Ford Strategy – Through segmentation car manufacturers have gained useful insights on the product features to be provided to different segments of car buyers.

(3) Makes the Marketing Effort More Efficient & Economic: Segmentation makes the marketing effort more efficient & economic. It ensures that the marketing effort is concentrated on well defined & carefully chooses segments. After all, the resources

of any firm are limited & no firm can normally afford to attack & tap the entire market.

(4) Benefits the customer as well.

(5) Helps spots the less satisfied segments & succeed by satisfying such segments.

(6) Helps achieve the specialization required in the product, distribution, promotion & pricing for matching the customer group & develop marketing offers.

Therefore, to compete more effectively, many companies go for target marketing which can establish & communicate the distinctive benefits of the company‘s market offering. This process is called market segmentation.

Eg.: GM has identified 40 different customer needs & 40 different market segments in which it would be present with its vehicle.

The Major Steps in Market Segmentation and Selection of Target

Markets

Why Segment the Market?

Let us see how segmentation benefits the marketer.

1. Facilitates the Proper Choice of Target Market

In the first place, segmentation helps the marketer to distinguish one customer

group from another within a given market and thereby enables him to decide

which the segment should form his target market.

2. Facilitates Tapping of the Market, Adapting the Offer to the Target

Segmentation also enables the marketer to crystallize the needs of the target buyers. It also helps him to generate an accurate prediction of the likely responses from each segment of the target buyers. Moreover, when buyers are handled after careful segmentation, the responses from each segment will be homogeneous. This, in turn, will help the marketer develop marketing offers/programmes that are most suited to each group. He can achieve the specialization that is required in the product, distribution, promotion, and pricing for matching the particular customer group, and develop marketing offers and appeals that match the requirements of that particular group.

What are the basis for market segmentation

The market can be segmented using several relevant bases they are:-

   Geographic Segmentation: Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, countries, cities or neighborhood. One of the major geographic segmentation in India is the division of rural & urban areas. The need to segment the market geographically becomes clearer when we look at some of the characteristics of the market. In India, there are more than 5000 towns & over 6,38,000 villages. Nearly 87% of these villages have a population of fewer than 2000 people. This variation in a population is important for the marketer while formulating marketing strategy & plans. In addition to these products penetration, income levels & availability of infrastructure like roads & electricity makes the task of geographic segmentation important.

For most products, penetration levels in rural areas are lower than in urban areas. Income & lifestyle issues influence the penetration rate of products & services.

E.g.: Haats & mandis serve important roles in the exchange of goods & services in rural areas.

(ii) Demographic Segmentation: In demographic segmentation, the market is divided into groups on the basis of variables such as age, family size, family life cycle, gender, income occupation, education religion, race generation, nationality & social class.

Age & Life Cycle Stage: Consumer wants & abilities change with age. E.g.: Hindustan Uni-Level introduced Pears soap in pink color especially for children. Johnson & Johnson Baby Powder & Talcum Powder are classic examples of products for infants & children. Television channels in India Indicate the segmentation based on age & life cycle. There are channels like Aastha & Sanskaar target which towards the old generation, cartoon network, Disney are channels for children, etc.

Gender: Men & women have a different behavioral orientation. Gender differentiation has been long applied to product categories such as clothing, cosmetics & magazines. Eg: Axe deodorant is positioned as a masculine product. Park Avenue from Raymond is positioned as a masculine brand. Bajaj wave is a brand specifically designed for women in the scooter segment.

Income: Income segmentation is a long-standing practice in a variety of products & services & is a basic segmentation variable. Eg: Nirma Washing Powder, was launched as the lowest priced detergent in India primarily targeted at the middle-income group. Markets for many consumers products in India are showing rapid growth due to low unit price packaging.

Generation: Each generation is profoundly influenced by the time in which it grows- the music movies, politics.

(i                  Social Class: Social class has a strong influence on preference in cars, clothing, home, furnishings, leisure activities, reading habits, retailers etc.

(i            

(i                Psychographic Segmentation : In psychographic segmentation, elements like personality traits, attitude lifestyle & value system form the base. The strict norms, that consumers follow with respect to good habits or dress codes are representative examples. Eg: Mr. Donald‘s changed its menu in India to adapt to consumer preference. The market for Wrist Watches provides an example of segmentation. Titan watches have a wide range of sub-brands such as Raga, fast track, edge, etc. or instant noodle markers, fast to cook food brands such as Maggi, Top Ramen or Femina, women‘s magazine is targeted for modern women.

(i                Behavioural Segmentation: Markets can be segmented on the basis of buyer behavior as well. The primary idea in buyer behavior is that different customer groups expect different benefits from the same product & accordingly they will be different in their motives in owning it. In buyer behavior based segmentation also, several subfactors form the basis. Eg: Purchase occasion can be one base, buyers can be segmented on the basis of whether they are regular buyers or special occasion buyers. Degree of use can be another base, they can be segmented on the basis of whether they are light, medium or heavy users of the product or whether they are enthusiastic or indifferent or negative towards the product.

What are the different levels of market segmentation

The starting point for discussing segmentation is mass marketing. In mass marketing, the seller engages in mass production, mass distribution & mass promotion of one product for all buyer. Eg: Henry Ford offered the model T-ford in one color i.e. black.

The argument for mass marketing is that it creates the largest potential market, which leads to lower cost & proliferation of advertising media & distribution channels making it difficult. Therefore more companies are turning to micro marketing at one of four levels: segments, niches, local & individual.

Segment Marketing: A market segment consists of a group of customers who share a similar set of needs & wants. Eg: We can distinguish between

car buyers who are primarily seeking low-cost basic transportation, seeking a luxurious driving experience & those seeking driving thrills & performance, segment & sector should not be confused. A car company might say that it will target young, middle-income car buyers. Young middle car buyers are a sector, not a segment.

The marketer does not create the segments, the marketer's task is to identify the segments & decide on which to target. Segment marketing offers key benefits over mass marketing. The company can design a better price & deliver the product or service to satisfy the target market.

Niche Marketing: A niche is a narrowly defined customer group seeking a distinctive mix of benefits. Marketers usually identify niches by dividing a segment into sub-segments. The customers in the niche have distinctive sets of needs, they will pay a premium to the firm that best satisfies their needs, the niche is not likely to attract other competitors & the niche has size, profit & growth potential.

Eg :

(i) Larger companies such as IBM have lost prices of their market to niches.

(ii) Ezee, the liquid detergent from Godrej is a fabric washing product for woolen clothes

(iii) Crack and ointment for pain is another product with niche focus. This product is primarily targeted at women for prevention of cracked heels.

(iv) Itch guard focuses on niche requirement of treating itching sensation

(v) Television channels particularly focusing on religion & spirituality.

(vi) Matrimonial websites like www.shadi.com. Niche Marketers understand their customer needs so well that customer is willing to pay a premium & as marketing efficiency increases niches that were too small, becomes more profitable.

Local Marketing: Target marketing is leading to marketing programs tailored to the needs & wants of local customers groups. Many banks in India have specialized branches that cater to the needs of the corporate customer. The in-city courier companies in many cities specialize in delivering packets on the same day.

The marketing activities concentrate on getting as close to the individual customers.

Eg: Nike.

Customization: The ultimate level of segmentation leads to one to one marketing. Today‘s customers are taking more individual initiative in determining what & how to buy. They log on to the internet, look up information, evaluates the product /service & in many cases, design the product they want. Companies see it more efficient as marketers can achieve more precision & effectiveness by addressing individual needs.