Market Segmentation: Meaning, Bases, and Importance

Market Segmentation: Meaning, Bases, and Importance

6 mins readComment
Chanchal Aggarwal
Senior Executive Content
Updated on Jan 8, 2024 18:34 IST

Market segmentation involves dividing a broad target market into smaller, more homogenous groups based on shared characteristics, enabling businesses to tailor marketing strategies and products to meet the specific needs of different customer segments. This approach enhances targeting, personalization, and overall marketing efficiency.

Market segmentation

Imagine a company is organising a big music festival. Market segmentation is like creating different stages or areas at a festival, each catering to fans of specific music genres. Just as music fans have diverse tastes - some love rock, others prefer electronic, and some are all about pop - customers in a market have different preferences and needs. 

By segmenting the market, companies figure out what different groups of customers are looking for, just like knowing which fans will head to the rock stage and which to the EDM tent. This allows tailoring marketing efforts, like ads, promotions, and product offerings, to appeal to each specific group. It's about ensuring every fan at a festival or customer in the market finds exactly what they love. This way, companies connect better with the audience, making festivals or businesses successful.

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Table of Content

Market Segmentation Meaning

Market segmentation is a marketing strategy that divides a broad target market into subsets of consumers with common needs, preferences, or characteristics. This approach allows businesses to tailor their marketing efforts and products to meet the specific needs of different groups. Segmentation can be based on various factors like demographics (age, gender, income), geography (location, climate), psychographics (lifestyle, values), or behavior (purchasing habits, product usage). By focusing on distinct segments, companies can more effectively address the unique desires of each group, leading to more personalised marketing, improved customer satisfaction, and potentially increased sales and brand loyalty.

Let's check this interesting video to better understand the concept of Market Segmentation.

Source: tutor2u-official

Bases of Market Segmentation

When discussing the basis of market segmentation, the underlying principle drives marketers to group their customers into different segments. The key idea is that not all customers are identical in any market. They have different needs, preferences, lifestyles, and buying habits.

Segmentation aims to understand these differences and group customers in a way that lets marketers target them more effectively. For example, some customers might be price-sensitive, while others value quality or brand reputation more. Some respond well to digital marketing, while others are more receptive to traditional methods.

By segmenting the market, marketers are not treating it as one big homogeneous group. Instead, they acknowledge the diversity within the market and try to cater to it. This approach helps them create more personalised and effective marketing strategies, develop products that better meet the needs of specific groups, and ultimately, help build stronger connections with customers. It's all about delivering the right message to the right people at the right time.

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Importance of Market Segmentation

Enhanced Targeting: Segmentation enables businesses to identify and focus on the segments that are most likely to purchase their products. For example, Apple targets tech-savvy and premium-segment consumers who are willing to pay more for advanced features and quality. This targeted approach is evident in their marketing strategies and product designs, appealing specifically to these segments.

Personalized Marketing: Companies can create personalized marketing campaigns by understanding different segments. For instance, Netflix uses viewer data to segment its audience based on viewing habits and preferences. This allows them to recommend personalized content to users in both India and the USA, increasing engagement and satisfaction.

Resource Allocation: Segmentation helps businesses allocate their marketing resources efficiently. Amazon, for example, uses segmentation to identify prime markets for different product categories. In electronics, they might target tech cities like Bangalore in India and San Francisco in the USA, ensuring better ROI for their marketing spend.

Competitive Advantage: Segmenting the market can provide a competitive edge. Take Coca-Cola, which segments its market by occasion and demographics. They offer a range of products from Coke Zero for health-conscious adults to fruit-based drinks for children, catering to diverse preferences and gaining a competitive advantage in both the Indian and US markets.

Market Expansion: Segmentation can reveal new market opportunities. For instance, automobile company Ford uses segmentation to identify potential customers for different car models. In India, they might focus on economical models for cost-conscious consumers, while in the USA, they could target luxury segments with high-end models.

Customer Retention: Businesses can increase customer loyalty by satisfying specific segment needs. Samsung, for instance, offers a wide range of smartphones catering to different segments - from budget phones popular in India to high-end models preferred in the USA. This approach helps in retaining diverse customer groups by meeting their specific needs.

Product Development: Insights from market segmentation can guide innovation. For example, L'Oréal develops beauty products by considering the diverse skin tones and textures prevalent in different regions. They offer products suitable for the varied skin types found, ensuring relevance and appeal across these markets.

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Types of Market Segmentation

Demographic Segmentation: Demographic segmentation involves dividing the market based on variables such as age, gender, income, education, occupation, family size, and life cycle. It's straightforward and often the starting point for segmentation, as these factors are easy to identify.

Geographic Segmentation: Geographic Segmentation is segmented based on geographical boundaries like cities, states, regions, or countries. It can also include urban, suburban, and rural areas or even based on climate and population density.

Psychographic Segmentation: The psychographic segmentation relies on consumers' lifestyles, interests, attitudes, values, and personalities. It's more subjective but can be incredibly effective as it considers the consumer's psychological traits, which can influence buying behavior.

Behavioral Segmentation: In behavioral segmentation, marketers segment consumers based on their behavior towards products, including usage rate, brand loyalty, user status (new, regular, potential), benefits sought, and readiness to purchase. It's crucial for understanding consumer interaction with a product or service.

Technographic Segmentation: In the digital age, segmenting based on consumers' use of technology, preferred devices, software, and platforms is increasingly relevant.

Top FAQs on Market Segmentation

What is Market Segmentation?

Market segmentation is the process of dividing a broad consumer or business market into sub-groups of consumers or segments, based on some type of shared characteristics. These characteristics can be demographic, geographic, psychographic, or behavioral.

Why is Market Segmentation Important?

Segmentation allows businesses to target different groups of consumers with tailored marketing strategies. It helps in focusing marketing efforts, understanding customer needs better, and improving the efficiency of marketing resources, leading to increased customer satisfaction and loyalty.

What are the Main Types of Market Segmentation?

The four main types are:
Demographic Segmentation: Based on age, gender, income, occupation, etc.
Geographic Segmentation: Based on country, region, city, or even neighborhood.
Psychographic Segmentation: Based on lifestyle, values, attitudes, etc.
Behavioral Segmentation: Based on consumer behaviors, usage rates, brand loyalty, and benefits sought.

How Do Businesses Identify Market Segments?

Businesses use various methods including surveys, interviews, customer feedback, purchasing data, and market research tools to gather information about their consumer base and identify patterns or similarities that can be used for segmentation.

Can a Business Target Multiple Market Segments?

Yes, businesses often target multiple segments, each with a tailored marketing mix. However, it's important to have distinct strategies for each segment to address their specific needs and preferences effectively.

About the Author
Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio