One of the critical aspects of marketing management is identifying the target market and creating market segments with common specific wants and preferences where a business bases its marketing strategies and orientations.
A group of individuals or organizations having similar characteristics causing them to also take on a similar product or service need is called a market segment. This term applies to consumers who are classified into groups according to the use of a similar product or service.
Why a Business Needs Market Segmentation
When the market is treated as a homogeneous group of individuals where the same marketing mix is offered to customers market-wide, it is called mass marketing. It employs mass production, distribution, and product dissemination.
However, since every individual has personal preferences, it is quite impossible to satisfy all customers by giving them equal treatment and offering the same products and services. A business has to be sensitive to the needs of the customers. If not, a competitor might take advantage and address the need of your customers that was not fulfilled.
On the contrary, when a company understands and recognizes the differences of the customers’ needs and does not offer the same product or service to everyone, this is called target marketing. So, the diverse market is then classified based on various factors and considerations.
The process of dividing the market into classified groups is called market segmentation. A company is able to better satisfy the needs of its customers when they are properly segmented depending on the need and commonalities of the customers.
Criteria for Segmenting a Market
A true market segment meets the criteria that are required of a company. Effective market segmentation is a product of proper categorization of different customers. Accessibility is one of the criteria which means that the target market should be closely available to the company. This includes the ease of communication and distribution channels.
Another factor that should be considered is that a market segment should be identifiable. This means that the different characteristics and similarities of the segments are determined so that one market segment can be distinguished from another.
A market segment must also be substantial. A high volume or production must satisfy market segments that are sufficiently large enough in order to properly distribute the product to them. The availability of the products must considerably compensate a large market segment for an increased profitability.
Apart from substantiality, durability must be considered in a market segment. Since people have changing preferences, it is better to cater to a market segment that does not alter too quickly in their tastes. The segments must keep a sense of stability in order to minimize frequent changes.
Lastly, market segments must be evaluated on their unique needs. They must have differences in their responses to the marketing mixes in order to justify the various products that are offered. To illustrate, let us use bath soaps as an example. Some people prefer those with whitening components while others would go for the moisturizing effect. Even others have unique needs on the kind of soap they use.
Bases for Consumer Market Segmentation
A large, diverse market is classified into different factors but these factors are consistent in a particular segment. For a consumer market, there are four main categories in segmenting the market. One of which is geographic segmentation where regional variables are considered.
Examples of these variables are region, population size, population density, and climate. Some companies take advantage of selling suntan lotions in tropical regions such as Hawaii while other businesses promote fur coats in colder places like Alaska.
Demographic segmentation relies on variables like age, gender, ethnicity, religion, education, occupation, income, social status and family status and size. The customers are grouped basing on the particular need and tastes.
Psychographic segmentation classifies customers based primarily on lifestyle. So, the variables for this kind of segmentation are social activities and interests, opinions, values, and attitudes.
Lastly, behavioral segmentation groups customers according to their behavior on a certain product or service. The factors considered are the customer’s readiness to buy, sensitivity to price, brand loyalty, usage rate, benefits required, and sometimes when occasions take place. More often than not, behavioral segmentation serves as a good initial basis for segmenting the market.