11 Marketing Segmentation

Kulbhushan Chandel

1. Learning Outcome

After completing this module, the students will be able to:

Describe the market segmentation in detail.
What are the reasons for the requirement of the market segmentation?
On what bases, the market segmentation is done?
Explain the major reasons of market segmentation.
Why the market segmentation is needed?

2. Introduction

The needs of the customers are the central concern for all the business decision making. Due to changing demand patterns of the customers, there arises a need for the companies to produce its products different from its competitors. Due to this the need of market segmentation was felt. Different customers need distinct versions of the same product. This has also led to greater competition in the market. The process which leads to breaking down of the whole market into different segments or into sub-groups is known as market segmentation. Each segment of market has different tastes, preferences and choices which lead to the rise in demand for the inimitable marketing mix for each segment. The process of manipulating the marketing mix in differentiating products, methods of communication and other marketing variables is known as target marketing.

Market segmentation is one of the most useful tools in marketing management. Fredrick F. Webster in his book, ‘Marketing for Managers’, explains that, “Market segmentation is a method for achieving maximum market response from limited marketing resources by recognising differences in the response characteristics of various parts of the market. It is a strategy of divide and conquer that adjusts marketing strategy to inherent differences in buyer behaviour.”

3. Meaning of Market Segmentation

Market Segmentation as defined by Philip Kotler,

“Market Segmentation is the process of dividing a market into distinct subgroups of consumers with distinct needs, characteristics, or behaviour, who might require separate products or marketing mixes.”

According to American Marketing Association,

“Market segmentation refers to dividing the heterogeneous markets into smaller customer groups having certain homogeneous characteristics that can be satisfied by the firm.”

From the above definitions, it is clear that market segmentation is a marketing strategy of dividing the customers into several homogeneous groups on the basis of some common characteristics such as income, age, sex, education, profession, religion, geographical location, etc. The main aim of the marketing segmentation is basically to prepare the distinct marketing programmes for each segment so that the customers could be satisfied.

The marketing personnel have to identify different approaches of dividing the market into a variety of segments and have also to develop the market segment profile. Market segmentation is the process of dividing the market into various segments and is a step of three-phase marketing strategy.

When the market segmentation is done, then the next step for the marketer is the selection of the segments to be kept in a target. Then the second step comes is the target marketing. Target marketing is the process of identifying and evaluating the attractiveness of each market segment and to selecting the segments to enter. For the triumph of this, the marketing mix is decided by the marketer, i.e., the specification of product, price, place, channel and promotional appeal for each market segment. The third step is positioning of the market which involves arrangement of the product in the minds of the target consumers in such a manner that it provides a clear and distinctive place relative to its competitive products.

4. Need for Segmentation

There was need of Market Segmentation to encourage target consumers to buy the product. Earlier when there was no market segmentation, then at that times the companies used to market its products on its own. It was done by the mass marketing in which the product was marketed for whole consumers in the same manner. The need of market segmentation was felt and it was first summed by Henry Ford, who offered the model T car of Ford Motor Company to the public in any colour as desired by the consumers, which used to come only in one colour i.e., black. In the same manner when the Coca-Cola Company used to sell its product only in one standard size of bottle, then they used to sell its product through mass marketing only.

Mass marketing is suitable if all the consumers are alike and they have same background, educational qualification, experience, then mass marketing is best suitable. But one cannot have the similar choice as of other human being. With the more awareness among the consumers, the company cannot appeal to all the buyers in the same manner. Rather, consumers are widely spread and they are even too varied in their needs and buying practices. Furthermore, the companies are in present days more capable of serving different segments of the market in different manner. In today’s widely scattered market the companies must try to serve best to its target market and in best possible manner it should serve its consumers better than its competitors.

With the increase in consumer awareness, the companies have moved from mass marketing to the target marketing and market segmentation. The companies select a particular market as market segment and develop its product and marketing mix accordingly. With the adoption of market segmentation, the companies are now able to focus more on those consumes who are more interested in the purchase of its products. The market segmentation has helped companies to differentiate its products from that of its competitors’ through styling, packaging, price, promotional activities, distribution methods and best after sale services. Like, in present days the Coca-Cola is available in various sizes, cans and with different ingredients so as to satisfy different segments of the market.

5. Reasons for the Development of Market Segmentation

Nowadays, every company who has adopted the modern marketing concept is using market segmentation as a part of its marketing strategy. It enables even the small manufacturers to compete in the national level markets. The following reasons for the development of market segmentation:

Customer orientation: In present days, almost all the companies are adopting the modern marketing concept. By market segmentation, a manufacturer become closer to the customers and can better understand their needs and varying behaviour.
Increase in competition: The availability of good number of substitutes for every product in the market increased the competition. The markets have become consumer-oriented. Every manufacturer or seller wants to attract more number of buyers, which is possible if he adopt the strategy of market segmentation.
Use of cost reducing techniques: The business firms are focusing on many cost reducing techniques such as:

(i) Open shelf system

(ii) Self-service

(iii) Use and destroy packages, etc.

By market segmentation a good adjustment in product and his demand is possible. This encouraged market segmentation.

Increase in purchasing power: There is rapid increase in per-capita income and family income, because number of earning members increased in most of families. Now it becomes easy to segment the market on income basis as products for high income group, middle income group and low income group. This factor helps in the development of market segmentation.
Technological advancement: Because of technological advancement, now it has become possible to fabricate more or less at the same cost, with the use of latest technology and modern machinery it has also become possible to produce goods according to the needs of diverse market segments.

6. Bases for Segmentation

The main thing to be done in market segmentation is to develop the base on which the segmentation is done. The marketer has to decide about the structure to be followed in market segmentation in which various market bases or market variables are considered, even a combination of both is followed.

The step towards developing a segmentation strategy is to locate the base or basis for segmenting the market. There are different bases which are used to segment the market. Prof. Cundiff and Still have given a very simple division of product market.

Consumer Market.
Industrial Market.

According to Philip Kotler, consumer market can be segmented on the basis of:

Geographical basis;
Demographic basis;
Psychological basis;
Marketing basis;
Profit basis;
Quantum basis;
Loyalty basis.

The market for industrial products can be segmented on the basis of:

Type of business ;
Usual purchasing procedure
Size of users;
Geographical market segmentation.

The main bases of market segmentation are as follows:

6.1 Geographic Segmentation: In geographic segmentation, the market is divided into different geographical units such as nations, regions, states, cities, or neighbourhood. A company has to pay separate attention to different geographical segments differently and it might also decide to operate in one geographical location, in more than one also. This all depends upon the company whether it operates in one location or two. Like woollen cloths are sold more in north India as compared to south India due to geographical segmentation, laptops are more sold in urban areas while fertilisers are more sold in rural areas. All this type segmentation is done on the basis of the geographic segmentation.

6.2 Demographic Segmentation: In demographic segmentation, the market is divided into groups based on the variables such as age, gender, family size, family life cycle, income, occupation, education, race, generation, nationality. This is the most common method of market segmentation in which the markets are segmented on the basis of demographic variables. The reason for the adoption of this method is that consumer needs, wants, usage rates vary closely with demographic variables and the other segment is easy measurement of this variable as compared to other variables.

For example: garments are divided on the basis of age and gender which is the most suitable variable for the segmentation of garments.

Income: Income is a valid segmentation base but in some countries social class is used as a base for market segmentation. As income disclosure is a privacy matter, so generally marketers divide the market on the basis of social class.
Sex: Sec in terms of female and male split is also an obvious base for market segmentation as this helps in market segmentation of the personal products very easily.
Age: market segmentation on the basis of age helps in the proper market segmentation. This is generally done in case of garment sector in which the clothing is divided on the basis of age.
Social class: it is the highest regarded segmentation variable in United Kingdom. Generally population is divided as upper middle class, middle class, lower middle class, skilled workers, working class and lowest level of subsistence.
Education: Education is occasionally referred as TEA that is terminal education age. This type of segmentation is linked with the habits of consumers like their reading and listening habits. The specification of these habits of the consumers helps the companies to understand the consumers properly.
Ethnic background: Ethnic background makes a discrete segment for segmentation and targeting purposes. In this the main categories dealt are clothing and food items
Family size: Family size is segmentation based which helps the marketer to understand about the amount and size of purchases to be made by the customer.
Political leaning: This type of segmentation relates to the type of media used by that particular segment. In this the mainly used type is advertisement to make consumers understand what the company wants to sell.
Family life cycle: family life cycle explains the various stages which are present in a family which are, bachelor stage, newly married stage, and full nest stage having married couple with the dependent children at home, also empty nest stage. Family life cycle gives the idea to the producer regarding various demands to be made by the different series of Phases of family.
Occupation: occupation groups are basically divided into two parts, white collar and blue collar groups.

6.3 Psychographic Segmentation: In psychographic segmentation, the market is divided into different groups on the basis of social class, lifestyles, personality character. The people in the same demographic group could have different psychographic tastes. In this, the main variables which are considered are lifestyle and attitudes of people as the buyer behaviour predominantly depend upon these in case of some certain products.

For example: Reid & Taylor suiting is suitable for Elite Class.

Upwardly mobile: Upwardly mobile class of people are those who are ambitious people seeking a better life style which are better paid off and this class of people are generally ready to try new products.
Traditional and sociable: This group of people are generally those seeking comfortable and compliance with the group norms and they generally seek approval and make traditionalist purchases.
Security and status seeking: the people of this group normally purchases the well known brands and the people belonging to this group makes purchases which make them confer their status and make their life more predictable.
Hedonistic preference: this group reflects those people who believe in enjoying life for the present with just a little thinking of the future.

6.4 Behavioural Segmentation: In behavioural segmentation, the market is divided on the basis of knowledge, attitude, uses or responses to a product.

Occasions for Purchase: Buyers can be divided on the basis of occasions when the users get idea for buying the product; they actually buy and use the product. Like jewellery is mainly purchased on the festivals and wedding occasions.
Buyer can also be divided on the basis of benefits that they seek form the product like the laundry products of Proctor & Gamble are launched with the unique benefits like cleaning, bleaching, economy, fabric softening, and fresh smell, strong and mild smell.
Usage Status: Buyer can be divided on the basis of user status like ex-users, present users, potential users and first time users and regular users.
Market can also be segmented on the basis of degree of consumption like light, medium or heavy user consumers.
Brand Loyalty: Buyer can be divided on the basis of loyalty status of the consumers. Like buyers are loyal to companies, brands, and even to the stores.

6.5 Multiple or Hybrid Segmentation: When the marketers use the combinations of segmentation bases to identify better defined target groups. Companies generally start the market segmentation with the single base and reach towards the multiple bases. This type of segmentation is known as multiple segmentation. One of its examples is geo-demographic segmentation which uses both geographical and demographic segmentation.

7. Segmentation Bases in Organisational Markets

Organisational markets are those in which comprises of industrial, institutional and resale markets.

7.1 Industrial Markets: Industrial markets are those markets whose ultimate aim is to satisfy the needs of the customers of the company. The aim of the marketers is to keep the production satisfied in order of meeting the materials and components.

7.2 Institutional Markets: Institutional markets are those whose criterion is on spending within the predetermined budgeted limit which has been set for the expenditure. These relate to the purchasing by the public institutions such as police forces, fire services, local and central government establishments and educational establishments.

7.3 Resale Markets: This type of markets includes those products which are to be purchased from the manufacturers in bulk and are to be sold to the individual customers.

7.4 Geographic Segmentation: It is a country wide split based on the territories of the sales persons, which are generally called areas or regions. In global marketing, the different parts of the world are known as different segments.

7.5 Benefits Sought: This is the most powerful form of the segmentation in customer market segmentation.

7.6 Type of customer: Market segmentation on the basis of the types of customers to be dealt is retail customers, independent customers, multiple group customers, heavy engineering customers and so on.

7.7 Customer size and loyalty: This is the key selling where a manager deals directly with the major accounts of the company. For example a customer who purchases the large amount are kept as merit customers and they are dealt in different way as a customer who makes small purchases.

7.8 Usage rate: Light users and heavy users are the basic criteria for segmentation of markets on the basis of usage rates.

The basis of segmentation for the organisational markets is similar to the segmentation of the customer markets. Sub-segmentation is also possible for the smaller sub-segments.

8. Summary

Market segmentation based on the sentiments that the customers have different and diversified needs and this segmentation is also the first step of the target marketing which involves identification of the different needs. Market differentiation is also a segmentation strategy. Market segmentation is the starting step in applying the marketing strategy. Once segmentation take place, the marketer targets the identified consumer group with proper marketing mix so as to position the product as perceived by the target segments. The important objective of market segmentation is to know about the varying buying behaviour of the consumers so that target consumers can be reached easily by framing various marketing programmes based on such differences of the consumers. It enables even the small manufacturers to compete in the national level markets. Market segmentation has its own benefits and costs. In the modern times, it is not possible for any firm to cover the entire market successfully. Thus, market segmentation helps the manufacturers and the marketers to match their products with the real needs of the consumers groups. It also benefit the consumer, he may get the best suited products at proper price and quantity.

Suggested Readings (Books and Websites)

Ghosh PK, Sales Management- Text and Cases, Himalaya Publishing House, 2010.
Jobber David and Lancester Geoff, Selling and Sales Management, Pearson Education, Sixth Edition.
McCarthy, Jerome E. (1964). Basic Marketing. A Managerial Approach. Homewood, IL: Irwin.
Needham, Dave (1996). Business for Higher Awards. Oxford, England: Heinemann.
Kotler, Philip (2012). Marketing Management. Pearson Education. Kotler, P. and Keller, K. (2006), Marketing and Management, Pearson Prentice Hall, Upper Saddle River, NJ, USA
McCarthy, Jerome E. (1975)”Basic Marketing: A Managerial Approach,” fifth edition, Richard D. Irwin