Market Segmentation

Market segmentation can be defined as the processof dividing a market into different homogeneousgroups of consumers.

Market consists of buyers and buyers vary from eachother in different ways. Variation depends upon differentfactors like wants, resources, buying attitude, locations,and buying practices. By segmentation, largeheterogeneous markets are divided into smallersegments that can be managed more efficiently andeffectively with products and services that match to theirunique needs. So, market segmentation is beneficialfor the companies serving larger markets.

What segmentation bases are used for business markets?

• Just like for consumer markets, business or organizational markets should be segmented in order for the firm to effectively develop a successful marketing program.

• The segmentation bases for business markets vary a little in terminology, but are quite similar in concept and application to the process of segmenting consumer markets.

• The main segmentation bases used in business markets include: geographic location, business description (sometimes referred to as demographics), operating practices, culture/personality, organizational goals etc...

Particularly as business markets have a much smaller number of potential customers, as opposed to some very large consumer numbers. However, firms that market to other businesses will typically have a smaller number of customers. These customers are, as a result, more important to them on an individual basis, so careful customer selection becomes more critical.

Business Market Segmentation

1.Psychographic

2.Behavioural

3.Occasional

4.Benefit

5.Demographic

6.Geographic

Other Specific

variables

1. Operating

2. Purchasing

Approach

3. Situational Factors

4. Personal

Characteristics

Some of the variables used to segment consumer markets can also be applied to Business markets, although there are others that are specific only to Business to business markets

In Psychographic Segmentation, segments are defined on the basis of social class, lifestyle and personality characteristics.Psychographic variables include:

1.Interests

2.Opinions

3.Personality

4.Self Image

5.Activities

6.Values

7.Attitudes

A segment having demographically grouped consumers may have different psychographic characteristics.

In this segmentation market is divided into segments based on consumer knowledge, attitude, use or response to product.Behavioral variables include:

1.Usage Rate

2.Product benefits

3.Brand Loyalty

4.Price Consciousness

5.Occasions (holidays like mother’s day, New Year and Eid)

6.User Status (First Time, Regular or Potential)

Behavioral segmentation is considered most favorable segmentation tool as it uses those variables that are closely related to the product itself.

Occasion segmentation is dividing the market into groups on the basis of the different occasions when the buyers plan to buy the product or actually buy the product or use the product. Some products are perceived to be apt for a particular time or day or event. Thus the motive behind occasion segmentation is to increase the ‘reason to buy’ so as to improve the sales of a particular product or service.

Occasional segmentation is divided primarily into three types:

1.Universal occasions

2.Regular personal occasions

3.Rare personal occasions

Benefit segmentation is dividing your market based upon the perceived value, benefit or advantage consumers perceive that they receive from a product or service. You can segment the market based upon quality, performance, customer service, special features or other benefits. Often different grades of the same product are offered to different market segments. Many different businesses use this type of segmentation, including the auto, clothing, furniture, and consumer electronics industries.

Demographic Segmentation

• In demographic segmentation, market is divided into small segments based on demographic variables like:

1. Age

2. Gender

3. Income

4. Occupation

5. Education

6. Social Class

7. Family size

8. Family life cycle

9. Religion

10. Ethnic group/Race

11. Nationality

• Demographic factors are most important factors for segmenting the customers groups. Consumer needs, wants, usage rate these all depend upon demographic variables. So, considering demographic factors, while defining marketing strategy, is crucial.

Geographic Segmentation In geographical segmentation, market is divided into different

geographical units like:

1.Regions (by country, nation, state, neighborhood)

2.Population Density (Urban, suburban, rural)

3.City size (Size of area, population size and growth rate)

4.Climate (Regions having similar climate pattern)

A company, either serving a few or all geographic segments, needs to put attention on variability of geographic needs and wants. After segmenting consumer market on geographic bases, companies localize their marketing efforts (product, advertising, promotion and sales efforts).

Operating Variables

Technology: What customer technologies should we focus on?

User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers?

Customer capabilities: Should we serve customers needing many of few services?

Purchasing Approaches

Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organization?

Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on?

Nature of existing relationship: Should we serve companies with which we have strong relationship or simply go after the most desirable companies?

General purchasing policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding?

Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

Situational Factors

Urgency: Should we serve companies that need quick and sudden delivery or service?

Specific application: Should we focus on certain application of our product rather than all applications?

Size or order: Should we focus on large or small orders?

Personal Characteristics

Buyer-seller similarity: Should we serve companies whose people and values are similar to ours?

Attitude toward risk: Should we serve risk-taking or risk-avoiding customers?

Loyalty: Should we serve companies that show high loyalty to their suppliers?

Evaluating Market Segments

Marketing segmentation identifies the particular

market segment opportunities available to a firm.

The firm then needs to evaluate the various possible

segments; decide on which segments to cover (the

target); and how best to meet specific requirements.

In this example, a variety of segmentation variables have been used in order to construct an interesting definition of market segments. The first variable considered is a business description, which broadly splits the potential market into food service, manufacturing, and supermarkets. Then, for each broad group, a different variable has been injected. For instance, food service was then further split by business description (restaurant/café or pizza outlet) and then by operating practice (whether or not they are a franchised operation).Manufacturers are further defined by whether they use pizza sauce as a key ingredient (say for frozen pizza) or may use this style of sauce in other products (frozen or microwavable pasta for example). And finally supermarkets were further defined by whether or not they already sell a private label pizza sauce through their stores.