Market Segmentation 1.1.2

Market Segmentation - the process of dividing a market into smaller sections which contain customers with similar needs and wants

Market segmentation splits up a market into different types of segments to enable a business to better of target it's products to the relevant customers.

Segments are usually measured in terms of sales volume or value

Segmentation is possible because in almost all markets there are differences in factors such as:
• Customers needs and wants
• How customers buy
• Location of customers
• Knowledge & experience of customers

Recognising and understanding these differences are the first Steps in an effective approach to market segmentation.

☆MAIN BASES OF SEGMENTATION☆

DEMOGRAPHIC > dividing a market into segments based on demographic variables such as age, gender, family, lifestyle, religion, nationality, ethnicity, occupation, Socio-economic group.

BEHAVIOURAL > dividing a market into segments based on the different ways customers use or respond to a product and the benefits they seek. E.g. customers wanting a value for money impulse buy. Other variables are loyalty status, readiness to purchase and rate of usage.

GEOGRAPHICAL > dividing a market into different geographical units such as nations, regions, cities, neighbourhoods or other territories.

PSYCHOGRAPHIC > involves dividing your market into segments based upon different personality traits, values, attitudes, interests and lifestyles of consumers and class.

Benefits and Drawbacks of Market Segmentation

Benefits
☆ Focuses resources on parts of a market where a business can succeed

☆ Allows a business to grow share in market or to "ride the wave" of fast-growing segments

☆ Helps with new product development where it focuses on needs of customers in the segment

☆ Helps to make the marketing mix more effective e.g. better targeting of promotion

☆ Better matching of customer needs. Customers needs differ so by creating separate products for each segment makes sense

☆ Better opportunities for growth. Market segmentation can build sales, for example customers can be encouraged to "trade up" after being sold an introductory lower priced product

☆ Retain more customers. Marketing products that appeal to customers at different stages of their life cycle, a business can retain customers he might otherwise switch to competing products and brands

☆ Targeting marketing communications. Businesses need to deliver their marketing message to relevant customer audience. By segmenting a market, the target customers can be reached more often and the lower costs and you are clear as to how each segment will respond.

☆ Enhanced profits for business. Customers have different disposable incomes and vary in how sensitive they are to price. By  segmenting markets businesses can raise average prices and subsequently enhance profits.

Drawbacks
⊙ Segmentation is an imprecise science - data about each market segment is not always available, up-to-date or reliable
⊙ Just because you can identify segment doesn't mean you can reach the customers in it.
⊙ Markets are increasingly dynamic and so too are the segments
⊙ Remember segmentation is attempting to group potential customers together which are SIMILAR so you can use common strategies to attract and retain them.  It can backfire if done with little discrimination.