Market Segmentation
Mohd Umar Raza
What is Market Segmentation
● To be useful, segments must be measurable, substantial, accessible,
differentiable, and accountable.
- Philip Kotler
Market segmentation divides the market into different subgroups. A market
segment consists of a group of customers who have similar needs and wants. It is
the marketer's goal to identify the appropriate subgroups of consumers. Market
segmentation is essential to marketing strategy.
The Purpose of Market Segmentation
● Definition: Market segmentation is the process of dividing a market into
groups of consumers that share similar characteristics and attributes.
● The market is defined by the group of people who would potentially be
interested in your products or services. They are people with wants, needs,
and the ability and willingness to buy products and services.
● The rule of thumb in segmentation is that the difference within groups
(segments) should be low (e.g., consumers in a group should share similar
characteristics), and the difference between groups should be high.
Target Market Segmentation
Demographic Market Segmentation
● Demographic segmentation includes dividing your market into different
subgroups based on demographic factors.
● It is quite common for marketers to segment based on demographics, as
demographic factors are often associated with the wants and needs of
consumers. Demographic characteristics are also relatively easy to measure.
For example, measuring someone's age is more straightforward than
measuring their values.
● Popular demographic variables used to segment markets are:
○ Age: consumers' wants and needs change with their age.
● Example: Many toothpaste brands have different lines of products for children
and adults. For example, Colgate markets its natural fruit-flavored toothpaste
and extra soft toothbrushes that feature cartoon characters for children and
babies.
Demographic Market Segmentation
○ Income: segmenting based on income is popular for specific
industries like cosmetics, automobiles, or financial services.
● Example: Car manufacturers often have a wide range of cars available for
customers based on the amount they are willing to pay. For example, Tesla
targets its Model 3 cars as a more affordable version of its Model S line.
○ Family size: family size also impacts the purchase decisions of
customers.
● Example: A couple with four children is more likely to buy a 7-seater car than
a couple with one child.
○ Gender: gender differentiation has been used by marketers for a
long time regarding goods like clothing or cosmetics.
Example: Women's shower gels or deodorants tend to be packaged in lighter and
softer colored bottles, whereas men's products are packaged in dark-colored
bottles.
Demographic Market Segmentation
○ Occupation: segmenting based on occupation divides the market
into groups based on their job function or seniority. This form of
segmentation is popular in business-to-business (B2B) markets,
which try to sell their product or service by targeting individuals who
have the authority to make purchase decisions for their business.
● Example: The CEO of a company will have the authority to purchase new
software for the company, whereas an intern will most likely not.
Geographic Market Segmentation
● Geographic segmentation involves dividing the market into geographical
groups like countries, states, cities, or neighborhoods.
● Geographic segmentation can be a valuable tool for marketers, as certain
customers from different parts of a country could have varying wants and
needs. For example, people living in a country's rural areas might have
different needs than those living in large cities. It is also possible that people
living in different parts of the world will have distinct needs due to their
country's climate.
Psychographic Market Segmentation
● Psychographic segmentation is a technique in which consumers are divided
based on psychological traits that influence their purchase patterns.
● Psychographic segmentation divides consumers into groups based on
psychological and personality traits, values, or lifestyles. Sometimes people
in the same demographic group can exhibit different psychographic
characteristics. Psychographic segmentation considers the 'how' and 'what'
people do in their lives. Psychographic segmentation is beneficial to
organizations as it helps them understand consumers' thought processes.
● Example: Dividing your customers into subgroups based on their opinion or
values on a particular topic or their lifestyle (food habits, daily activities) is an
example of psychographic segmentation.
Behavioral Market Segmentation
● In behavioral segmentation, marketers divide consumers into subgroups
based on their attitudes and behavior.
● Behavioral segmentation might include creating customer segments with
similar knowledge of, attitudes toward, or usage of a product or service.
Benefits of Market Segmentation
Here are some of the main advantages of market segmentation.
● Better customer understanding,
● Insight into consumer behavior, buying habits, and purchase patterns,
● Allows organizations to understand consumer needs,
● Helps organizations create and strengthen brand loyalty,
● Helps organizations develop effective marketing campaigns to target specific
groups of consumers,
● Allows organizations to form an appropriate marketing strategy,
Benefits of Market Segmentation
● Leads to better insights that help organizations create effective forecasts and
budgets,
● Helps organizations optimize their pricing and product features to attract
more customers,
● Can lead to increased revenues and profitability.
Disadvantages of Market Segmentation
● Inaccuracy: If market research data is incorrect and the segments the
marketer constructed are inaccurate, the marketer might not engage
customers; thus, the segmentation process might bring considerable losses
to the company.
● Expensive: It takes a lot of research to come up with appropriate customer
segments. Although the company can conduct the research, it may also
decide to hire external agencies to conduct the research, which can be costly.
● Waste of resources: The marketer might spend a lot of time creating
different campaigns to target the various customer segments. The company
wastes significant time and resources if segments are inaccurate or simply
unengaged by the campaign.
Thank You