UNIT 2: Market Segmentation
Meaning
Market segmentation is the process of dividing a large and heterogeneous market into
smaller, relatively homogeneous groups of consumers who have similar needs,
preferences, characteristics, or buying behaviour.
Instead of using one marketing strategy for everyone, firms divide the market into
segments so they can design suitable products, pricing, promotion, and distribution
strategies for each group.
In any market, consumers differ in:
• Age
• Income
• Lifestyle
• Tastes and preferences
• Usage patterns
• Purchasing power
Because of these differences, a single marketing strategy cannot satisfy all consumers
equally. Segmentation makes marketing more customer-oriented, efficient, and
competitive.
Definitions of Market Segmentation
Philip Kotler defines market segmentation as:
“The process of dividing a market into distinct groups of buyers who have different
needs, characteristics or behaviors, and who might require separate products or marketing
mixes.”
William J. Stanton states:
“Market segmentation consists of taking the total heterogeneous market for a product and
dividing it into several sub-markets or segments, each of which tends to be homogeneous
in all significant aspects.”
Levels of Market Segmentation
1. Mass Marketing
Mass marketing means serving the entire market with one product and one marketing mix
without differentiation.
• Assumes all consumers have similar needs
• Focus on large-scale production
• Economies of scale reduce costs
Example: In earlier years, Coca-Cola offered one standard product to all consumers.
2. Segment Marketing
The market is divided into distinct segments based on variables such as age, income,
lifestyle, or usage.
• Different marketing strategies for different segments
• Better customer satisfaction than mass marketing
Example: Automobile companies offer separate models for:
• Budget buyers
• Family users
• Luxury car customers
3. Niche Marketing
Niche marketing focuses on a narrowly defined group whose needs are not fully satisfied
by mainstream products.
• Smaller but profitable segment
• Customers ready to pay premium
• Emphasis on specialization
Examples:
• Royal Enfield – Classic cruiser motorcycles
• Decathlon – Sports-specific product segments
• Starbucks Reserve – Premium coffee experience
4. Micromarketing
Micromarketing tailors products and marketing programs to individual customers or
small local segments.
Includes:
• Local marketing
• Individual marketing
Examples:
• Amazon – Personalized recommendations
• Netflix – Content suggestions based on viewing history
Importance of Market Segmentation
• Precise definition of market
• Better understanding of consumer needs
• Efficient use of marketing resources
• Development of appropriate marketing mix
• Competitive advantage
• Identification of market opportunities (actual & anticipatory)
• Increased customer satisfaction and loyalty
• Better market coverage and expansion
• Maximization of sales and profitability
Bases of Market Segmentation
1. Geographic Segmentation TYPE 1
Division based on location such as country, region, state, city, climate.
Consumers in different areas have different needs due to climate, culture, and lifestyle.
Examples:
• High demand for woolen clothes in North India
• Higher consumption of tea in North India compared to South
2. Demographic Segmentation TYPE 2
Based on measurable population characteristics:
• Age
• Gender
• Income
• Education
• Occupation
• Family size
• Religion
• Nationality
Why widely used?
• Needs closely related to demographic variables
• Easy to measure
(a)
1 Gender Segmentation
Dividing market into male and female customers.
Examples:
• Lakmé, Nykaa – Women-focused
• Beardo – Men’s grooming
• Nike – Now serving both genders
(b)
2 Income Segmentation
Dividing consumers based on purchasing power:
• Low income
• Middle income
• High income
Examples: Demograohic
• Toyota – Budget and premium models
• Rolex – High-income consumers
• FMCG companies – Small packs for price-sensitive buyers
Example: HUL’s Regional Segmentation Strategy
Rin geographic
• Positioned as strong stain remover
• Popular in North & urban India
• Suitable for dusty regions
Wheel
• Targeted at rural & semi-urban markets
• Lower price point
• Performs well in hard water
Why different brands?
• Regional washing habits differ
• Price sensitivity varies
• Climate and water conditions differ
• Strong regional loyalty
3. Benefit-Based Segmentation
Consumers grouped according to benefits sought.
Example:
Colgate-Palmolive offers:
• Strong Teeth (cavity protection)
• Sensitive (relief from sensitivity)
• Whitening (cosmetic benefit)
4. User Status Segmentation
Classifies consumers as:
• Non-users
• Potential users
• First-time users
• Regular users
• Ex-users
Examples:
• Amazon Prime – Free trials
• Swiggy – Benefits for regular users
5. Usage Rate Segmentation
Divides consumers into:
• Light users
• Medium users
• Heavy users
Heavy users contribute maximum sales.
Examples:
• Airline frequent flyer programs
• Subscription discounts for heavy buyers
6. Loyalty-Based Segmentation
Customers classified as:
• Highly loyal
• Split loyal
• Switching loyal
Examples:
• Apple Inc. – Strong brand loyalty
• Amul – Generational loyalty
7. Buyer Readiness Stage
Stages:
• Unaware
• Aware
• Interested
• Convinced
• Ready to purchase
Example:
• Car companies offer awareness ads and test drives
8. Attitude Towards Product
Consumers may have:
• Positive attitude
• Negative attitude
• Indifferent attitude
Example:
• Eco-friendly brands build positive perception
Psychographic Segmentation
TYPE 3
Meaning
Psychographic segmentation divides consumers based on:
• Lifestyle
• Personality
• Values
• Interests
• Opinions
It focuses on how consumers think, feel, and live.
Two consumers with same age and income may buy different products due to different
lifestyles.
1. Personality-Based Segmentation
Based on traits like:
• Confidence
• Aggressiveness
• Sociability
Adopter categories:
• Innovators
• Early adopters
• Early majority
• Late majority
• Laggards
2. Social Class Segmentation
Based on occupation, education, income.
Examples:
• Louis Vuitton – Upper class
• Reliance Trends – Middle class
3. Values-Based Segmentation
Based on beliefs and life priorities.
Examples:
• Patagonia – Sustainability
• Patanjali Ayurved – Traditional values
Requirements of Effective Segmentation Minimum req for segmentation
1. Measurability – Size and purchasing power must be measurable
2. Substantiality – Segment must be large and profitable
3. Accessibility – Segment must be reachable
4. Differentiability – Segment must respond differently
Priori Segmentation vs AID Segmentation
Priori Segmentation
• Traditional approach
• Variables chosen before research
• Based on age, income, gender, etc.
Example: Dividing mobile users into teenagers, professionals, senior citizens before
analyzing data.
AID (Automatic Interaction Detection) Segmentation
• Data-driven statistical method
• Uses computer analysis
• Detects which variables actually influence buying behavior
Segments are formed based on real consumer responses, not assumptions.
Multistage Segmentation
Meaning
Multistage segmentation divides the market in multiple steps using more than one base of
segmentation.
It gradually narrows down the market for precise targeting.
Example: Samsung – Smartphone Market
Stage 1: Geographic Segmentation
• Urban
• Semi-urban
Stage 2: Demographic Segmentation
• Age groups
• Income levels
Stage 3: Psychographic Segmentation
• Tech-savvy
• Trend-oriented
• Status-seeking
This method provides highly accurate and focused targeting.