Market Segmentation

Segmentation is important in consumer analysis because understanding the consumer will allow us segment the market more meaningfully. To get a product or service to the right person or company, a marketer would firstly segment the market, then target a single segment or series of segments, and finally position within the segment(s). Market segmentation is the basis for customer orientation and differentiation

Segmentation is essentially the identification of subsets of buyers within a market who share similar needs and who demonstrate similar buyer behaviour. The world is made up from billions of buyers with their own sets of needs and behaviour. Segmentation aims to match groups of purchasers with the same set of needs and buyer behaviour. Such a group is known as a 'segment'.

The diagram above depicts how segmentation information is often represented as a pie chart diagram - the segments are often named and/ or numbered in some way.

Market segmentation and the identification of target markets, however, are an important element of each marketing strategy. They are the basis for determining any particular marketing mix. Literature suggests the following steps:

Segmentation is a form of critical evaluation rather than a prescribed process or system, and hence no two markets are defined and segmented in the same way. However there are a number of underpinning criteria that assist us with segmentation:

• Is the segment viable? Can we make a profit from it?

• Is the segment accessible? How easy is it for us to get into the segment?

• Is the segment measurable? Can we obtain realistic data to consider its potential?

There are many ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on.

However the more general bases include:

• by geography - such as where in the world was the product bought.

• by psychographics - such as lifestyle or beliefs.

• by socio-cultural factors - such as class.

• by demography - such as age, sex, and so on.

A company will evaluate each segment based upon potential business success. Opportunities will depend upon factors such as: the potential growth of the segment the state of competitive rivalry within the segment how much profit the segment will deliver how big the segment is how the segment fits with the current direction of the company and its vision.

Segmentation basically involves dividing consumers into groups such that members of a group (1) are as similar as possible to members of that same group but (2) differ as much as possible from members other segments. This enables us then to "treat" each segment differently—e.g., by:

• Providing different products (e.g., some consumers like cola taste, while others prefer lime)

• Offering different prices (some consumers will take the cheapest product available, while others will pay for desired features)

• Distributing the products where they are likely to be bought by the targeted segment.

In order for a segment structure to be useful:

• Each segment must have an identity—i.e., it must contain members that can be described in some way (e.g., price sensitive) that behave differently from another segment.

• Each segment must engage in systematic behaviours (e.g., a price sensitive segment should consistently prefer the low price item rather than randomly switching between high and low priced brands).

• Each segment must offer marketing mix efficiency potential—i.e., it must be profitable to serve. For example, a large segment may be profitable even though the competition it attracts tends to keep prices down. A smaller segment may be profitable if, for example, it is price insensitive or can be targeted efficiently (e.g., if its members consistently subscribe to one magazine where all the company’s advertising can be put). Some segments are not cost effective. For example, a small group of consumers would love to have a no-sports news channel (similar to CNN), but we are just too small a group to profitable.

Successful segmentation requires the following.