Market Segmentation – Definition, Process, and Forms

One of the core objectives of business organisations is to maximise their profit. Attainment of this goal is only possible if is firm has integrated customer-driven focus. Over the past 2 decades, firms have increasingly considered the concept of market segmentation as an important element in their marketing success. Market segmentation is defined as the process through which a firm partitions its market into small groups depending on the customers’ characteristics and needs.

Firms intend to satisfy the consumer’s needs. Currently, adoption of mass marketing can lead into a firm failing. For example, a firm’s margin may be pushed downwards because some needs of a certain category of consumers are not wholly addressed. This may also give the competitor a winning margin. Market segmentation is based on the notion that a market is heterogeneous in nature. Therefore, it is possible for a firm to divide the market into small homogenous groups on the basis of the consumers’ desires and preferences. Market segmentation enables a firm to satisfy the diverse consumer needs while at the same time maintaining a certain degree of economies of scale.

Market Segmentation Process

For market segmentation to be effective, there are a number of steps that management teams should follow as discussed below.

1. Identification of target market – The first step in market segmentation entails identifying a specific target market that it intends to sell its products and services to. This is achieved by conducting a comprehensive consumer market research on the identified customer group. The research should be aimed at establishing whether the identified customer group have common consumption behaviour. Identification of the target market is important since it influences the effectiveness of the marketing strategies implemented.
2. Understand the expectations of the target audience – For a firm’s products and services to be successful in the market, they must meet the customers’ expectations. Through a consumer market research, a firm can be able to understand the customers’ interests and product requirements. For example, through a market research Kellog which is a firm in the hospitality industry was able to develop a product that targeted customers who intended to reduce their calorie intake.
3. Creating the subgroups – Organizations should ensure that they have a comprehensive understanding of the target market. This is attained by creating subgroups on the basis of various characteristics. One of the ways through which a firm can attain this is by integrating certain market variables.
4. Reviewing the target audience – The firm should conduct a continuous review of the consumption behavior of the identified subgroups. This will aid in determining the fluctuations in their product requirement and what triggers it. As a result, the firm will be efficient in adjusting its marketing strategies accordingly. Consumer demand, interests and perceptions varies frequently. Reviewing the consumers’ behavior will increase the firm’s effectiveness in offering competitive products.
5. Naming the market segment – The firm should name the segments developed accordingly for the implementation to be easier. For example, the segments can either be on the basis of age.
6. Develop market strategies – Firms should devise strategies aimed at promoting its products in the specific segments. The promotion strategies formulated should contribute towards development of a connection with the target customers.
7. Determining the size of the market segment – This is an important step since it in that it enables a firm to plan its marketing mix strategies well. For this step to be successful, marketers should gather sufficient data from the market. Determining the size of the market will also will also increase the firm’s efficiency in sales planning and forecasting.

Forms of Consumer Market Segmentation

There are 5 main bases upon which a firm can conduct its market segmentation. These include geographic, demographic, benefit sought, volume and psychographic basis.

1. Geographic market segmentation – This entails segmenting the total market on the basis of its geographic characteristic such as the size and region of the country, climate and market density. Market density refers to the population or number of businesses in a particular areal. Geographic segmentation enables a firm to meet the regional product preferences of the customers.
2. Demographic market segmentation – Demographic segmentation is one of the most commonly used market segmentation strategy. In demographic segmentation, there are different variables that a firm can use to differentiate its products and services offering. These include the consumer’s income, age, gender, education, and household size. Evaluation of the consumers’ demographics can aid in offering products that satisfy the target consumer group. A firm can acquire demographic information of the population from the census conducted by the government.
3. Benefit segmentation – This entails segmenting the market on the basis of the benefits sought by the consumers. Firms should understand the benefits that the consumers seek at attaining by purchasing a particular product. This will enable the firm to be efficient in its product development. For example, Sensodyne toothpaste is targeted at consumers who have highly sensitive teeth.
4. Volume segmentation – This strategy entails segmenting the market on the basis of the quantity of goods purchased. This depends on the consumers’ product usage. Consumers have varying usage habits which range from heavy, moderate, light to non users. This method of segmentation is best implemented if firms’ understand the consumers’ spending habits.
5. Psychographic segmentation – Consumers have different personalities and lifestyle which influence their consumption patterns. Psychographic segmentation involves categorizing the customers on the basis of their interest and opinions. Psychographic market segmentation enhances demographic segmentation.

Benefits of Segmentation

There are a number of benefits associated with market segmentation. Segmentation enables a firm to develop a comprehensive understanding of the consumers. For example, it enhances a firm’s understanding of the consumers needs and their decision making process. This makes it possible for a firm to influence the consumers purchasing patterns. This can be achieved by being efficient in the process of formulating marketing strategies such as promotion, distribution, pricing and product development. Additionally, market segmentation also enables a firm to be effective in adjusting its marketing strategies according to changes in the business environment. The resultant effect is that the firms’ performance is enhanced.