What is Market Segmentation? | Types, Objectives, Benefits, Limitations
Market segmentation is to pinpoint specific customer groups so that merchandise and branding may be tailored to appeal to them. There are many different ways to segment markets, including demographically, geographically, or behaviorally.
By identifying the items that are most likely to capture a portion of the market being targeted and the most effective channels for marketing and distributing those products, market segmentation aids businesses in reducing risk. By segmenting your market, you may learn why people buy from you and use that information to make the most of your marketing budget. You will then be able to better address their particular demands.
Because they enable you to provide clients with more individualized experiences, market segmentation approaches can help your organization generate more revenue. Using the market segmentation approach, the target market is divided into smaller groups based on characteristics they have in common, such as age, income, personality traits, behaviour, interests, needs, or geography.
You may focus your product, sales, and marketing strategies by understanding your market segmentation. Guiding how to create product offerings for different groups, such as men vs women or high-income versus low-income, may aid your product creation processes. These categories can be used to enhance advertising, marketing, and sales efforts. Companies may create strategies for different client types depending on how they perceive the total worth of various goods and services thanks to segmentation. Since they are aware that their message would be received in this way, they may choose to make it more specific.
Types of Market Segmentation
The four main categories of market segmentation are as follows. One of a kind, however, may often be divided into individual and organizational segments. There are five typical categories of market segmentation listed below.
Demographic Segmentation
It entails segmenting the market based on factors like age, financial status, gender, race, education, and occupation of the target market. According to this method of market segmentation, persons with similar demographics will have similar needs. A fresh video game console’s market segmentation technique could show that young men with discretionary income make up the majority of its consumers.
Firmographic Segmentation
Demographic segmentation and firmographic segmentation are the same ideas. This method examines organizations rather than people and considers a company’s personnel count, clientele, number of locations, or yearly income. An illustration would be a corporate software vendor approaching a global company with a more varied, adaptable suite while addressing smaller businesses with a fixed-price, more straightforward package.
Geographic Segmentation
Technically speaking, geographic segmentation is an aspect of demographic segmentation. This strategy organizes clients according to their actual locations on the basis that it’s likely that residents in the same region will have comparable wants. For larger businesses looking to diversify into new branches, offices, or locations, this technique works better. An illustration would be a clothing company that stocks more rain gear in its locations in the Pacific Northwest than in the Southwest.
Behavioral Segmentation
Consumer behavior, consumer activities, and customer decision-making patterns are all important components of behavioral segmentation. Based on their prior interactions with markets and products, this strategy divides customers into categories. This strategy assumes that consumers’ past spending patterns predict what they would likely buy in the future, even if purchasing patterns might vary over time or in reaction to external factors. As an illustration, younger generations are more inclined to purchase national brands of beer than older generations.
Psychographic Segmentation
Psychographic segmentation aims to categorize customers according to their lifestyle, personality, attitudes, and interests. This technique of market segmentation is sometimes the most challenging. Since these features might change rapidly, and would not have easily accessible objective data, doing this might be more challenging. However, because it organizes people based on inherent motivations rather than external data points, this strategy may produce the strongest market segment outcomes. A fitness gear business, for instance, may focus on those who like participating in or watching a range of sports.
Market Segmentation Objectives
Product
One of an organization’s primary goals and one of the grounds for conducting a market segment is the development of successful goods. This enables you to increase your product’s functionality while lowering expenses to better serve your target market.
Pricing
Setting the proper pricing for your items is another goal of market segmentation. figuring out who will be willing to pay for it among the general population.
Promotion
It enables you to identify the participants in each section and group them according to various criteria so that your initiatives are directed effectively.
Place
The ultimate purpose of segmentation is to choose how to present and make a product enjoyable to each set of consumers.
Benefits of Market Segmentation
Implementing marketing segmentation requires time and money. However, effective marketing segmentation techniques may enhance the long-term profitability and health of a business. Market segmentation has a lot of benefits which are listed below:
Better utilization of resources
Management can concentrate on certain customer or demographic groups thanks to marketing segmentation. Instead of aiming to sell products to the whole market, marketing segmentation provides a targeted, precise strategy that typically costs less than a broad-reach approach.
Increased brand awareness
Due to marketing segmentation, management must consider how it wants to be seen by a certain group of people. Once the market segment has been determined, management must choose what message to produce. Given that this message is targeted at a certain group of people, it stands to reason that branding and marketing strategies used by businesses are more likely to be exceedingly purposeful. Additionally, this could unintentionally result in better customer relations with the company.
Increased likelihood of brand loyalty
Customers have more opportunities to build enduring relationships with a company because of marketing segmentation. More direct, human marketing techniques that foster sentiments of variety, community, and belonging may be more effective in attracting customers. Market segmentation also boosts your chance of finding the ideal customer that fits your product line and demography.
Stronger market differentiation
Market segmentation enables a company to decide exactly what message it wants to convey to customers and competitors. Making it clear how a company differs from its competitors may also help with product differentiation. Instead of using a generic marketing strategy, management develops a unique image that is more likely to be memorable and focused.
Better-targeted digital advertising
A corporation may implement more effective customized advertising methods thanks to marketing segmentation.
Limitations of Market Segmentation
Without any possible drawbacks, the aforementioned advantages cannot be realized. Here are several drawbacks to take into account before putting market segmentation tactics into practice.
Higher upfront marketing expenses
The long-term objective of marketing segmentation is efficiency. To achieve this efficiency, though, businesses frequently have to invest money upfront to gather information about their target markets and client base.
Increased product line complexity
Through marketing segmentation, a huge market is divided into smaller, more manageable chunks. A company’s marketing mix may grow overly complex and inconsistently express its entire brand rather than having a consistent product range.
Greater risk of misassumptions
The premise behind market segmentation is that consumers with equivalent demographics will have comparable needs. It’s possible that this isn’t always the case. A corporation runs the danger of misidentifying the needs, values, or motives of people within a particular community by lumping them all together under the assumption that they have anything in common.
Higher reliance on reliable data.
Market segmentation is only as reliable as the supporting evidence for the assertions it makes. This necessitates paying attention to the sources from which data is gathered. This entails being aware of evolving patterns and instances in which market segmentation may have changed from earlier surveys.
