MARKET SEGMENTATION ANALYSIS

“Market segmentation is a natural result of the vast differences among people”

-Donald A. Norman

When creating your business plan or establishing your next product launch, establish who your target buyers are. Once you have the overall market for your products or services, break that larger group down into smaller sections, called segments. A market segment looks at the smaller groups to find specific consumer needs unique to that section. The world has billions of buyers with their sets of needs and behavior. Also, Segmentation aims to match a group of purchasers with the same set of needs and buyers’ behavior. Hence, its objective is to design a marketing mix that precisely matches the expectation of customers in the targeted segment.

What is market segmentation?

Let’s start with a definition of market segmentation, which refers to the process of dividing a broad target audience into smaller, more specifically defined groups which also known as customer segmentation. Splitting the market into sub-groups makes it more approachable as a whole and helps you create more targeted and curated marketing materials for different audiences. Market segmentation aims to increase a company’s precision marketing. In contrast, sellers that use mass marketing engage in the mass production, distribution, and promotion of one product for all buyers.

We have two definitions of a Market Segment that is given below:

“Market segmentation is the subdividing of customers into a homogeneous subset of customers where any subset may conceivably select as a market target to be reached with a distinct marketing mix.” — Philip Kotler

“Market segmentation consists of taking the total heterogeneous market for a product and dividing it into several submarkets of segment each of which tends to be homogeneous is full of significant aspects.” — William Stanton

The idea behind marketing segmentation is to identify different groups of buyers among your overall target market. By breaking your target market into smaller segments, you can create specific marketing messages for each group. For instance, if you sell whitening toothpaste, and your market consists of adults who want a brighter smile, then your research might segment your market into college-aged students, people with coffee-stained teeth and senior citizens who want a whiter smile. By segmenting the market, you also figure out what messages each group needs to hear to purchase your product. You also can make changes to your products or services to make them better fit each market segment.

Types of Marketing Segmentation:

In segmenting consumer markets, marketers can apply geographic, demographic, and psychographic variables related to consumer characteristics as well as behavioral variables related to consumer responses. Once the segments are formed, the marketer sees whether different characteristics are associated with each consumer response segment. Like researcher might examine whether car buyers who want “quality” versus “low price” differ in their geographic, demographic, and psychographic makeup. This will determine whether the segments are useful for marketing purposes. While it is possible to group consumers together by any characteristic, the following four segments are considered to be the richest descriptors of people’s buying patterns.

1. Demographic Segmentation:

In demographic segmentation, the market is divided into groups on the basis of age and the other variables. One reason this is the most popular consumer segmentation method is that consumer wants, preferences, and usage rates are often associated with demographic variables. Another reason is that demographic variables are easier to measure. Even when the target market is described in non-demographic terms, the link back to demographic characteristics is needed in order to estimate the size of the target market and the media that should be used to reach it efficiently.

i) Age and Life Cycle Stage -

Consumers need change with age. Let’s discuss with the toothpaste brand, it launches different products for different age groups like it has products for children, adults, and old people. Hence, Market of pampers divide into prenatal 0–5 months. baby 6–12, toddler 13–23 month and pre-schooler 24+ month. However, age and life cycle can be tricky variables. For example, Ford originally designed its Mustang automobile to appeal to young people who wanted an inexpensive sport car. But when Ford found that the car was being purchased by all age groups, it recognized that the target market was not the chronologically young, but the psychologically young.

ii) Gender:

Gender segmentation has long been applied in clothing, hairstyling, cosmetics, and magazines. Occasionally other marketers notice an opportunity for gender segmentation. Women are more communal minded; girls are love to do talk and are curious about their environment. Men first read about the product while women bring it by relating it to a personal level. Some brands are targeted only to women, others only to men. So, Major areas of gender differentiation are clothing, hairstyle, cosmetics, Avon.

iii) Income:

Income segmentation is a long-standing practice in such categories as automobiles, boats, clothing, cosmetics, and travel. However, income does not always predict the best customers for a given product. The most economical cars are not bought by the really poor, but rather by those who think of themselves as poor relative to their status aspirations; medium-price and expensive cars tend to be purchased by the overprivileged segments of each social class.

iv) Social Class: Social class. Social class strongly influences preference in cars, clothing, home furnishings, leisure activities, reading habits, and retailers, which is why many firms design products for specific social classes. However, the tastes of social classes can change over time.

2. Psychographic Segmentation:

In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle or personality and values. People within the same demographic group can exhibit very different psychographic profiles. Psychographic segmentation looks at the interests, values, and attitudes of your visitors. It is highly useful for NGOs or companies with a specific social or environmental agenda. Also, in the field of leisure and sports, this type of segmentation can make a difference. Sometimes a person’s viewpoint can even be a prerequisite for being part of your audience, and the way your audience perceives you relative to others in the industry can impact their decision.

i) Lifestyle:

People exhibit many more lifestyles than are suggested by the seven social classes, and the goods they consume express their lifestyles.

ii) Personality:

Marketers can endow their products with brand personalities that correspond to consumer personalities. Apple Computer’s iMac computers, for example, have a friendly, stylish personality that appeals to buyers who do not want boring, ordinary personal computers.

iii) Values:

Core values are the belief systems that underlie consumer attitudes and behaviors. Core values go much deeper than behavior or attitude, and determine, at a basic level, people’s choices and desires over the long term. Marketers who use this segmentation variable believe that by appealing to people’s inner selves, it is possible to influence purchase behavior. Although values often differ from culture to culture.

iv) Attitude:

Five attitude groups can be found in a market: (1) enthusiastic, (2) positive, (3) indifferent, (4) negative, and (5) hostile. So, for example, workers in a political campaign use the voter’s attitude to determine how much time to spend with that voter. They may thank enthusiastic voters and remind them to vote, reinforce those who are positively disposed, try to win the votes of indifferent voters, and spend no time trying to change the attitudes of negative and hostile voters

3. Behavioral Segmentation:

In behavioral segmentation, buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Many marketers believe that behavioral variables — occasions, benefits, user status, usage rate, loyalty status, buyer-readiness stage, and attitude — are the best starting points for constructing market segments. So, Behavior segmentation divides consumers into a group according to their observed behavior. Also, many believe that behavior variables are superior.

i) Occasions:

Buyers can be distinguished according to the occasions on which they develop a need, purchase a product, or use a product. For example, air travel is triggered by occasions related to business, vacation, or family, so an airline can specialize in one of these occasions. Thus, charter airlines serve groups of people who fly to a vacation destination

ii) Benefits:

Buyers can be classified according to the benefits they seek. One study of travelers uncovered three benefit segments: those who travel to be with family, those who travel for adventure or education, and those who enjoy the “gambling” and “fun” aspects of travel.

iii) Brand Loyalty status:

Buyers can be divided into four groups according to brand loyalty status: (1) hard-core loyal who always buy one brand, (2) split loyal who are loyal to two or three brands, (3) shifting loyal who shift from one brand to another and (4) switchers who show no loyalty to any brand. Each market consists of different numbers of these four types of buyers; thus, a brand-loyal market has a high percentage of hard-core loyal. Companies that sell in such a market have a hard time gaining more market share, and new competitors have a hard time breaking in.

iv) Usage Frequency:

Markets can be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption. Marketers usually prefer to attract one heavy user rather than several light users, and they vary their promotional efforts accordingly.

4. Geographic Segmentation:

Geographic Segmentation is perhaps the most common form of market segmentation, wherein companies segment the market by attacking a restricted geographic area. For example, corporations may choose to market their brands in certain countries, but not in others. A brand could be sold only in one market, one state, or one region of world. Many restaurant chains focus on a limited geographic area to achieve concentration of force. Regional differences in consumer preferences exist, and this often provides a basis for geographic specialization. Geographic segmentation can take many forms like urban versus rural, north versus south, seacoasts versus interior, warm areas versus cold, high-humidity areas versus dry areas, high-elevation versus low-elevation areas, and so on. These examples also reveal that geographic segmentation is sometimes a surrogate for other types of segmentation.

Geographic Segmentation Examples

• ZIP code
• City
• Country
• Radius around a certain location
• Climate
• Urban or rural

We can understand it by taking an example if any company of luxury car wants to sell the car and the company decided to establish its plant in the local area where the condition of the road is not good .and people don’t spend their money on a luxury item then it would be a bad decision.

Choosing a geographic location for the business is a very serious decision that is taken by a proper concern from the expert.

Examples of Segmentation Analysis

Segmentation analysis helps a company to understand its customers’ demographics and their motivations for buying particular products. Small businesses can follow the examples of market segmentation techniques of other companies to design their own ways of better understanding a target market.

1. Credit Card Companies:

Credit card companies often segment their target market based on the various types of cards they are offering. Some cards are geared toward higher-income customers, others to those who are looking for cash back or rewards and still others to those who want to build their credit score. A study by the marketing firm Dun and Bradstreet found that more than one-third of a given market consists of “innovators” — consumers who are interested in broad services and who display extreme loyalty to a company. The same study found that around 17 percent of a given market consists of “traditionalists” who prefer to remain risk averse. Credit card companies can use such data to target their marketing and promotion to specific consumers based on which category they fall into.

2. Luxury Clothing Retailer:

Luxury clothing brands will often subdivide their customers into various categories based on how likely those customers are to buy again in the future. This is important, because some customers will be one-off consumers, they might buy an expensive handbag as a present or for a special occasion, but they won’t be likely to be a regular or semi-regular customer. Knowing who the big spenders and repeat buyers are allows the company to cultivate relationships with those customers. The clothing maker can offer promotions to them, hold private wine receptions to showcase new products and make follow up calls or send handwritten notes to them after their purchases.

3. Banks:

Many banks, particularly community-based banks and credit unions, use segmentation analysis to scrutinize their account holders’ banking patterns and financial habits. Looking at things such as account activity, amount held in savings and willingness to invest helps the bank to segment its customers into categories. “Committed” customers, for example, would describe those who have high account balances, are likely to have more than one account and are also likely to invest in certificates of deposit or bonds. “Parkers” would be a term used to identify account holders who use the bank as a place to stash money but aren’t necessarily those who spend the money or invest it heavily for aggressive growth.

Benefits, Challenges and Limitations of Market Segmentation

i) Benefits:

Data-driven segmentation can result in higher revenue and lower financial risk and here are so many ways it can improve your overall marketing efforts

1. Develop more effective strategies. No need to limit yourself to one approach. Market segmentation lets you apply the best-performing methods for each customer group.

2. Create hyper-focused messaging. Marketing efforts to the specific pain point of your customer base instead of trying to reach everybody with the same message.

3. Increase response rates. Better targeting and curated messages lead to higher response rates. In turn, you can increase the return on your paid advertising and lower the overall cost of your marketing campaigns.

4. Attract the right customer. More personalized and powerful marketing messages draw in prospects who are genuinely interested in your product.

5. Improve brand loyalty and retention. When you meet more of your audience’s needs, they are more likely to remain loyal to your brand.

6. Expand reach. It identifies slot markets that would go unnoticed if you referred to your entire target audience as a whole.

7. Promote new product development. Segmentation helps you understand audiences’ needs better. Use this understanding to develop dedicated features or launch new products that provide solutions to their needs.

8. Support decision-making in other business areas. By analyzing the preferences of different segments, one can accommodate the audience better in other areas, such as pricing, distribution, and design.

ii) Challenges:

1. Identifying Your Customers. It’s important to know as much about your customers as possible to maximize sales. For example, it’s not enough to know that most of your buyers are women. You must also determine if they are single, older, married, have children and more. Specific demographic information will help you understand why women are buying your product so you can better launch new products, improve existing ones or create different versions of the same product.

2. Creating Your Brand. Once you know your customer profile, you can create your brand, or the image you want your product or serve to carry. If your customers are mostly single women, you may market a car as sporty, sexy or low maintenance. If your customers are mostly married women, you will want to emphasize the safety and roominess of your car. You’ll need a different graphics, music for your ads and other communications methods for a younger target audience than you will for an older one.

3. Setting Your Price. Evaluate your competition and find out what the market is currently paying for similar products or services. Depending on the brand you hope to create, you may have to sell your product for more or less, based on your image. If you are selling affordability, you’ll need to set a lower price than your competitors. If you are selling status, you might need to price your product higher than your competitors to create a greater perceived value.

iii) Limitation:

1. Target multiple segments increase marketing costs if a company has one market segment, then it has low cost but as the segment increases budget also increases.
2. Segmentation can lead to vast of products. So, the problem that creates is that it becomes hard to manage that.
3. Narrowly segmenting a market can hamper the development of broad brand equity. when we manage small areas broader hamper badly.
4. Also, sometimes it don’t achieve the desired goal.

Conclusion

Markets are segmented in a three-step procedure of surveying, analysing, and profiling. The major segmentation variables for consumer markets are geographic, demographic, psychographic, and behavioral, to be used singly or in combination. Business marketers can use all of these variables along with operating variables, purchasing approaches, situational factors, and personal characteristics. To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable. Once a firm has identified its market-segment opportunities, it has to evaluate the various segments and decide how many and which ones to target. In evaluating segments, managers look at the segment’s attractiveness indicators and the company’s objectives and resources. In choosing which segments to target, the company can focus on a single segment, selected segments, a specific product, a specific market, or the full market; in the full market, it can use either differentiated or undifferentiated marketing. It is important for marketers to choose target markets in a socially responsible manner, by ensuring that the targeting serves the interests of the market being targeted as well as the company.

Published by- Snehal Varne, Addvija Medhekar, Tushar Ranjan, Shrutak Shende and Sidhharth Saho