explain what market segmentation is and when to use it.

Market sectionalisation is an important basis of many successful marketing strategies. Carefully chosen segments allow tailoring the marketing mix to more than individual customer needs. Thus, they help to invest marketing spending more finer.

This article explains what market place partition is, it discusses why it is of import and what advantages it yields. Finally, the commodity provides a basic framework on how to apply market segmentation.

Introduction and Definition of Market Segmentation

The sectionalization of the overall marketplace besides as the derived target markets are the footing for determining whatsoever particular marketing mix.

Market segmentation is necessary because in well-nigh cases buyers of a product or a service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviors. Since it is virtually impossible to cater for every customer'south private characteristics, marketers group customers to market place segments past variables they have in mutual. These mutual characteristics allow developing a standardized marketing mix for all customers in this segment.

Definition:

Marketplace segmentation is the segmentation of customer markets into homogenous groups of customers, each of them reacting differently to promotion, advice, pricing and other variables of the marketing mix. Ideally, relevant differences between buyers within each segment are as small as possible. Thus, every segment tin can exist addressed with an individually targeted marketing mix.

Benefits of Marketplace Segmentation

As already stated, partition is the basis for developing targeted and effective marketing plans. Furthermore, analysis of market segments enables decisions about intensity of marketing activities in particular segments.

A segment-orientated marketing approach by and large offers a range of advantages for both, businesses and customers.

Improve serving customers' needs and wants

It is possible to satisfy a variety of customer needs with a limited product range by using dissimilar forms, bundles, incentives and promotional activities.

The pricing models of many spider web based services are a good example. They often include a free plan to attract undecided first-time customers (reducing uncertainty and concerns, initiation customer lock-in). In add-on, in that location commonly is a moderately priced programme for lite users like individuals and pocket-size businesses as well as a more expensive plan for heavy users. The paid plans include more features and functions too every bit higher service levels.

The underlying product or service is basically ane and the same. It is only slightly adapted to encounter the needs of very different market place segments.

Up-selling across the customer journey

The above example of web-based services with dissimilar pricing plans illustrates that market segments enable businesses to target their customers according to their lifecycle stage.

As users get used to the service and grow their business concern, they can easily change to the adjacent higher plan or to supplementary services. The service parcel evolves across the customer journey. Thus, segment-specific product bundles increment chances for up-selling and cross selling.

Assimilation of purchasing ability by price differentiation

It is often difficult to increase prices for the whole market. Nevertheless, information technology is possible to develop premium segments in which customers have a higher price level. Such segments could be distinguished from the mass market by features like additional services, exclusive points of sale, product variations and the like. A typical segment-based toll variation is by region. The generally higher price level in large cities is evidence for this.

When differentiating prices past segments, organizations have to take care that there is no chance for cannibalization between high-priced products with high margins and budget offers in unlike segments. This run a risk is the higher, the less distinguished the segments are.

The theoretical concept behind this price differentiation is price elasticity. In mass markets businesses oftentimes compete mainly on price. This is because the products are comparable and may have a high level of price elasticity. A thorough knowledge near customers' preferences enables businesses to develop more distinguishable offers for detail market segments. Demand for differentiated products that offering a particular (and perceivable) value to customers often has a lower level of toll elasticity. Hence, such products tin sustain a higher toll level and higher margins.

Attract additional client groups

Targeted marketing plans for particular segments allow to individually approach customer groups that otherwise would look out for specialized niche players. Past segmenting markets, organizations can create their own 'niche products' and thus attract additional customer groups.

Moreover, a sectionalisation strategy that is based on client loyalty (see loyalty ladder model below) offers the take a chance to attract new customers with starter products and to move these customers on to premium products.

Sustainable client relationships in all phases of customer life bike

Customers modify their preferences and patterns of beliefs over fourth dimension. Organizations that serve different segments forth a customer's life bicycle tin guide their customers from phase to phase by always offering them a special solution for their detail needs.

For example, many car manufacturers offer a product range that caters for the needs of all phases of a client life cycle: first auto for early twens, fun-car for young professionals, family car for immature families, etc. Skin care cosmetics brands oftentimes offer special serial for babies, teens, normal pare, and elderberry pare.

Targeted communication

It is necessary to communicate in a segment-specific way even if product features and brand identity are identical in all market segments. Such a targeted communications allows highlighting those criteria that are most relevant for each particular segment (e.g. cost vs. reliability vs. prestige).

Stimulating Innovation

An undifferentiated marketing strategy that targets at all customers in the full market necessarily reduces customers' preferences to the smallest mutual basis. Segmentations provide information most smaller units in the total market that share detail needs.

[bctt tweet="An undifferentiated marketing reduces customers' preferences to the smallest common basis"]

But the identification of these needs enables a planned development of new or improved products that better meet the wishes of these customer groups. If a product meets and exceeds a customer's expectations by adding superior value, the customers normally is willing to pay a college price for that product. Thus, profit margins and profitability of the innovating organizations increase.

In addition, businesses may pay detail attention to the customer segments of innovators and early adopters (according to Diffusion of Innovation Theory). By advisedly analyzing these customer groups they tin proceeds valuable insights virtually new trends that provide management to their innovation activities.

Higher Marketplace Shares

The above points take already highlighted that market place segmentation is an ideas basis for pursuing additional growth opportunities. This translates in higher market shares in many cases.

In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market place segments in the get-go. Marketplace leadership in selected segments improves the competitive position of the whole organization in its relationship with suppliers, aqueduct partners and customers. It strengthens the brand and ensures profitability. On that ground, organizations have better chances to increase their marketplace shares in the overall market place.

Summarizing all these advantages, the need for market segmentation is closely related to strategic decisions:

Market partition is the basis for customer orientation and differentiation.

A framework for conducting market place sectionalisation

From marketplace segmentation to marketing planning

Literature suggests the following steps from market sectionalization to marketing planning:

Steps from market segmentation to marketing planning

Adjusted from Kotler and Doyle

Criteria for Market place Segmentation

There are a huge number of variables that could be used for market place sectionalization in theory. They comprise easy to make up one's mind demographic factors also as variables on user behavior or customer preferences. In add-on, at that place are differences betwixt private customers and businesses. The following table shows the best known examples – but is not exhaustive.

Consumer Markets

Geographic:

• Land or region
• Rural or metropolitan area

Demographic:

• Age, sex, marital status
• Income, occupation, education
• Organized religion, nationality, ethnical grouping

Psychographic:

• Social status
• Lifestyle-blazon
• Personal type

Behavioral:

• Intensity of product utilise
• Brand loyalty
• User behaviors
• Price sensitivity
• Technology adoption (according to Diffusion of Innovation Theory)

Industrial Markets / B2B Markets

• Manufacture
• Intermediary or terminal consumer
• Blazon of corporation (public or individual sector)
• Size of corporation
• Geographical location
• Intensity of product apply
• Organization of purchasing office
  • Centralized or decentralized
  • Purchasing policies, rules and criteria

Since customer orientation of organizations is growing, partition every bit the basis for establishing customer relationships and client loyalty gains importance. In this context, the elements of the loyalty ladder model could be used as sectionalisation variables:

Loyalty Ladder

Marketers have to choose those variables that are relevant for segmenting the market for a particular production or service. The basic rule is to focus on a express number of important variables. To segment the marketplace into too many modest, slightly distinct segments would crave splitting up the marketing budget into too many ineffective chunks. Such varied marketing activities in the diverse segments could confuse customers and would lead to cannibalization furnishings.

Kotler mentions five criteria for an effective segmentation:

• Measurable: It has to be possible to determine the values of the variables used for segmentation with justifiable efforts. This is important specially for demographic and geographic variables. For an organization with direct sales (without intermediaries), the own customer database could deliver valuable information on buying behavior (frequency, volume, product groups, mode of payment etc).
• Relevant: The size and turn a profit potential of a market segment accept to exist large plenty to economically justify carve up marketing activities for this segment.
• Attainable: The segment has to be attainable and servable for the system. That means, for instance, that at that place are target-group specific advertizing media, as magazines or websites the target audience likes to utilise.
• Distinguishable: The market segments have to be that various that they show different reactions to different marketing mixes.
• Feasible: It has to be possible to approach each segment with a particular marketing program and to depict advantages from that.

Summary

Market segmentation is the basis for better targeting different customer groups. It enables businesses to grow in sales and profits by

• Reaching additional customers,
• Differentiating prices and arresting purchasing power
• Achieving customer lock-in, upward-selling and cross-selling
• Staying innovative

A potent focus on bonny market segments is of special relevance in our fast moving times of Net economy. Kalakota and Whinston* say in their law of differentiation:

"As the blurring of distinctions amongst firms increases in electronic markets, survival requires identifying your unique role in the market in terms of value to the client."

Following that, Kalakota and Whinston perceive division as the ground for offering superior value to item customer groups and thus for developing a stable and profitable marketplace position.

*(Ravi Kalakota and Andrew B. Whinston: Exercise or Dice: Market place Segmentation and Product Positioning on the Internet – this article is not longer available online)

(c) Dagmar Recklies, 2001, updated 2015

---

Our literature recommendation on segmentation and target marketing

• Market Sectionalization: How to Practise It and How to Turn a profit from Information technology
  by Malcolm McDonald
  This book spells out a totally dispassionate, systematic procedure for arriving at genuine, needs-based segments that tin can enable organizations to escape from the dreay, miserable, downward pricing spiral which results from getting market segmentation wrong. Cipher in business works unless markets are correctly divers, mapped, quantified and segmented.
• Market Segmentation: An Introduction and Review
  by
  Function ane discusses the terminology and basics–and cuts through the jargon that then often can confuse the bailiwick (and the reader). Part 2 explains the steps you demand to take in a successful segmentation study, with detailed descriptions of the methods you will come across, and a step-by-step explanation of how to exercise segmentation, from preparing the survey to the final deliverables.
• Why Marketing to Women Doesn't Work: Using Market place Sectionalization to Understand Consumer Needs
  by Jenny Darroch
  Practical and well-researched, this book provides deep insights into the principles of marketplace segmentation, and recommends a new approach that thoroughly examines the issue of human needs, regardless of gender, in order to properly target and effectively accomplish female customers.

bagleywough1948.blogspot.com

Source: https://www.themanager.org/2015/02/market-segmentation/

Share this post