Market segmentation is the process of dividing a broad, heterogeneous market into smaller, homogeneous groups of consumers or organizations that share similar needs, characteristics, or behaviors.
- This strategy helps businesses develop targeted marketing efforts, ensuring that products and services are tailored to the specific needs of each segment.
- The ultimate goal of market segmentation is to enhance customer satisfaction, improve marketing efficiency, and maximize profitability.
For example, a clothing brand may segment its market based on age groups (kids, teenagers, adults, seniors), allowing it to design and promote clothing specifically suited to each group’s preferences.
Process of Market Segmentation:
The market segmentation process involves systematic steps to divide and analyze a market effectively. These steps include:
- Market Survey
- Determine Segmentation Bases
- Collect and Analyze Data
- Profile Each Segment
- Evaluate and Segment the Market
- Select Target Segments
1.) Market Survey:
- The first step is conducting market research to gather information about consumer preferences, behaviors, and market trends.
- Surveys, focus groups, and industry reports are used to collect qualitative and quantitative data.
Example: A smartphone company surveys customers to understand their preferred phone features, price range, and buying habits.
2.) Determine Segmentation Bases:
Businesses choose criteria to divide the market, such as:
- Demographic (age, gender, income, occupation)
- Psychographic (lifestyle, personality, values)
- Geographic (location, climate, urban/rural)
- Behavioral (brand loyalty, purchase frequency, product usage)
Example: A luxury watch brand may segment its market based on income level and lifestyle preferences.
3.) Collect and Analyze Data:
- Once segmentation bases are determined, businesses gather and analyze relevant data to identify patterns and trends.
- The data is obtained from customer feedback, online analytics, sales records, and competitor analysis.
Example: A food delivery service collects data on ordering frequency, delivery time preferences, and cuisine choices.
4.) Profile Each Segment:
Each segment is given a detailed profile, including:
- Consumer needs, purchasing behavior, and preferences.
- Estimated market size and growth potential.
- Possible challenges in reaching the segment.
Example: A sportswear company profiles a segment as young, active consumers who prefer eco-friendly and stylish athletic apparel.
5.) Evaluate and Segment the Market:
Businesses assess whether the segment is:
- Measurable (Is its size and purchasing power quantifiable?)
- Accessible (Can the segment be reached through marketing efforts?)
- Substantial (Is the segment large enough to be profitable?)
- Differentiable (Does it respond uniquely to marketing strategies?)
- Actionable (Can the company effectively serve this segment?)
Example: A car manufacturer evaluates whether there is a profitable market for electric vehicles among urban professionals.
6.) Select Target Segments:
- The business chooses the most attractive and profitable segments to focus on.
- A targeted marketing mix (product, price, place, and promotion) is developed for each segment.
Example: A cosmetics brand selects eco-conscious women aged 25-40 as a target segment and markets organic beauty products to them.
Requirements for Market Segmentation:
For market segmentation to be useful and successful, the following criteria must be met:
- Divisible
- Measurable
- Accessible
- Substantial
- Actionable
1.) Divisible:
The market should be divided on the basis of purchasing power, purchasing purpose, purchasing habit, lifestyle, gender , religion , place etc.
2.) Measurable:
The market characteristics used for segmentation must be measurable in term of size, purchasing power, etc. This ensures that businesses can assess the potential profitability of targeting a particular segment.
3.) Accessible:
The segment should be reachable through marketing channels, such as advertising, sales teams, and distribution networks. Businesses must have the ability to effectively communicate and deliver products to the segment.
4.) Substantial:
The segment should be large and profitable enough to justify the investment in marketing and production. If a segment is too small, it may not be economically viable for the company to focus on.
5.) Actionable:
The business should have the resources to effectively target the segment. The company must have the resources and ability to develop effective strategies to serve the segment.
