12 Effective Marketing Segmentation Criteria

Kulbhushan Chandel

  1. Learning Outcome

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

  • Explain the criteria for market segmentation.
  • Why is the segmentation of markets done?
  • What is the importance of market segmentation?
  • What are the main advantages and disadvantages of market segmentation?
  1. Introduction

   Before understanding the concept of market segmentation, we should first understand what a market is. Firstly we have to find out that whether there is a need for products. Then the company has to find that those who need a product are in the desire to purchase it. Then it has to be finding out that the customers who are willing have the money to buy it and they are willing to spend it. A market is thus comprises of the people or businesses with a potential interest, purchasing power and willingness to spend the money to buy a product or service that satisfies their need. Segmentation is the process of portioning the large heterogeneous market into smaller groups of people who have similar needs and similar purchase behaviour. There are various methods of segmenting the markets and when if only one is selected for targeting, it is called as concentration strategy. Although the mass marketing cannot fully satisfy the customers, but still there are many companies which are following it. It is generally used in the marketing of the standardised goods and services such as sugar, dry cleaning services, etc., i.e. when the large customers purchases the product for the same use and same purpose. The main advantages of the mass marketing are it is cost efficient and it is easy for the marketer to devise a single marketing strategy for the customers. Despite of these advantages the mass marketing has various disadvantages. A single product offering could not satisfy the diverse needs of all the customers in the market. And the consumers with the unsatisfied needs purchases the products of the competitors which leads to the loss of customers to the company. Thus, the company need to have market segmentation so that it can concentrate on all types of the customers of the company. In recent times propagation of the computerised marketing system has helped the marketers to narrowly focus on each of the market segment properly so that all the customers including both existing customers and potential customers could be properly focused so that no customer of the company is lost to the competitor.

 

3. Objectives of Market Segmentation

 

It is a well known fact that no two buyers are identical even twins. They may differ on the basis of their nature, habits, behaviour, income, age, education, profession, likings, dis-likings and buyer’s preferences, etc. Therefore, the main objective of market segmentation is to establish the difference among the buyers so that homogeneous group of buyers can be determined.

 

Philip Kotler defined the objective of market segmentation in the following words, “The purpose of market segmentation is to determine difference among buyers which may be significant in choosing among them or marketing to them.”

 

The followings are some other objectives of market segmentation:

  • Making group of customers on the basis of homogeneous characteristics.
  • Identification of target consumers by identifying their needs, tastes and priorities.
  • Determination of marketing strategies, targets and goals.
  • Making all the activities consumer-oriented.
  • Identification of the areas where the customers could be created and market could be expanded.
  1. Target Market Selection Process

    The process of selecting a potential market, segmenting, evaluating the segments and profiling the market to better target it with a personalized marketing mix is the target market selection process. Though the process is a sequential step, the ordering of various tasks varies with some tasks occurring simultaneously. Target marketing process is a continuous process due to continuous change in the market and market being a dynamic one. Due to this reason, the companies have to continuously revise it s marketing strategies so as to meet the required changing needs of the market. This process comprises of the following eight inter-related tasks:

 

4.1 Identification of the total market

4.2 Determination of the need of segmentation

4.3 Determination of the bases of segmentation

4.4 Profiling of each selected segment

4.5 Evaluating potential profitability of each segment and select segments for targeting

4.6 Selecting positioning strategy

4.7 Developing and implementing appropriate marketing mix

4.8 Monitoring, evaluating and controlling

 

The first step is the identification of the total markets of all the potential customers for a specified product. The purchasing pattern of all persons has to be studied so as to become aware regarding the buyers. To become aware about the customer who actually buys the product is a main step. Like a recent survey revealed that the main target market for the men’s clothing is women, but earlier the main concern was given on the men as the men were considered to be the target market for the men’s clothing. Then, the next step comes is to divide the total market into segments so that the target marketing programmes could be made. In actual there must be some difference in the customers’ needs and demands, potential product variations must also be cost-effective and implemented product differences must be evident to customers.

 

The data needed for segmentation could be collected from numerous sources, be it internal or external sources. Many companies keep the information about its customers in the customer database. And for the expansion of the customer database the companies need to add the database of its potential customers also in it. And this data is generally collected from the external sources. There are many lists available like magazines, association members, census data and even its customers.

 

For effective market segmentation, the marketer has to consider both internal and external factors along with many criteria.

 

5. Criteria for Successful Market Segmentation

 

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. That is why every firm aims at selecting one or a few suitable market segments most suited for their products. For effective market segmentation the following criteria must be considered:

 

5.1 Heterogeniety: There should be clear difference between the preferences of the consumers for the same product. If the product is used by the consumers in same manner and for the same purpose then there is no need of segmentation but if the product is demanded by the consumers for different purposes then there is a need for segmentation of the market on the basis of the purpose for which the product would be used.

 

5.2 Identifiable: The segment or the group of consumers must be clearly defined. The marketer must be able to identify the members of the segment on the basis of some characteristics.

 

5.3 Measurable: The effectiveness of segmentation depends upon the measurability of variables on the basis of which market is segmented. The differences in the consumer preferences should be measurable and it should be related to the measurable variables like age, gender, lifestyle, income, occupation and so on. This is possible for various consumers and for some consumers it is not possible. The company should identify such consumers and should also make a segment of them.

 

5.4 Accessible: Segment must be accessible in two senses. Firstly, the firm must be able to make them aware of products and services. Secondly, they must get these products at a reasonable price. It must be easily accessible means it should be easy to reach. The final criterion is that the market segmented should be readily assessable and reachable for the targeted customers.

 

5.5 Responsiveness: The identified market segment should respond favourably to marketing efforts. A clearly defined segment must respond to changes in any of the elements of marketing mix.

 

5.6 Significant: Another criterion for effective segmentation is that it must be meaningful for cultivating and exploring it. It must have adequate buying power. The demand viewpoint should be sufficiently bright and profitable too.

 

5.7 Substantial: The segment must be large enough to justify a marketing programme. Substantiality not only depends upon the number of actual and potential buyers but also on their purchasing power. The proposed market segment must have enough size and must be approachable having proper purchasing power. It should be growing market segment with continuous profitability and sustainability. The profits made in the marketing mix must be more than the cost incurred for it.

 

5.8 Action ability: Marketing companies must be able to respond to the different preferences with the appropriate and profitable marketing mix as an action plan.

 

5.9 Size: It should be substantial in size and potential to justify the expenditure made on it. The segmentation should be profitable for the company.

 

5.10 Variations: It should show a distinct variation in responsiveness to the marketing programmers in comparison with other segments.

  1. Importance of Market Segmentation.

   Market segmentation is the reality of the market situation. Different customers have different needs and preferences. Therefore, market demand for all the products and services is heterogeneous and not homogeneous. For segmentation when customer’s needs are analyzed; we find that there are number of needs, which are still unfulfilled and by fulfilling these needs we can become a successful marketer. Segmentation ensures higher customer satisfaction and improves effectiveness of the marketing programme. Market segmentation strategy is a customer- oriented philosophy.

 

6.1 Knowledge of marketing opportunities: Under market segmentation, marketers are in a better position to locate and compare marketing opportunities. In the market area where response of the customers seems to be poor, the strategy of approach can be readjusted, so that the sales can be pushed up. Identification of the target market helps to know whom the company is analysing as potential and actual customers.

 

6.2 Adopting effective marketing programme: When customer needs are fully understood, a marketer is able to formulate and implement different marketing programmes which suits the markets. In the absence of segmentation, a single marketing programme will be framed which may not be effective for all consumer groups. But because of segmentation the seller can create different marketing programmes which suits to the needs of different consumer groups. He can make better adjustments of his products and marketing appeals.

 

6.3 Proper allocation of resources: Segmentation leads to proper allocation of marketing resources because customer is the focus of all marketing efforts and only target markets are served. He can allocate his limited financial and marketing resources according to the needs of different segments.

 

6.4 Better assessment of the competition: Market segmentation helps in assessing correctly the strength and weaknesses of the competitors. This assessment helps the marketer to adopt different strategies in different markets taking into account the competitor’s strategies.

 

6.5 Market segmentation also helps to know the level of competition in each segment. If the competitor has stronghold in any segment, there is no use in wasting resources on such segment. However, in the segment where competitor’s product fails to satisfy the target group, the marketer can successfully penetrate in it.

 

6.6 Knowledge of customer’s needs: Market segmentation improves a company’s understanding of why customers do or do not buy certain products or services. It also provides an understanding that how a company can make adjustment to meet changing market demands. All marketing activities are directed towards the satisfaction of consumers. With the help of segmentation it becomes easy to measure the level of segmentation in each segment and also to make improvements in the segmentation level.

 

6.7 Adjustment in products: Under market segmentation, marketers can easily make finer adjustments in their products and market communication according to the change in taste, need, nature and income of the consumers. More resources may be allocated to market segments where sales opportunities are better.

 

6.8 Effective advertising appeals: Effective messages can be propagated to the consumers through effective advertising media when the choices, habits, preferences, needs of different buyer groups are duly recognized with the help of market segmentation. So, different advertising appeals can be formulated for different segments. Hence, segmentation helps to make the advertising appeal more effective.

 

6.9 Enhances marketing efficiency: Market segmentation enhances marketing efficiency by offering specific pricing, sales promotion and distribution channel as per the requirement of different segments. This increases the marketing efficiency of firm.

 

6.10 Increase in sales volume: By segmentation the market manufacturer can increase his sales volume. As we know, each segment has different demand pattern and when the manufacturer satisfy the demand of different segments by changing his product, the total sales volume of the company increases.

 

6.11 Benefits to consumers: Segment results in product wars between the giant manufacturers, e.g., Coca-Cola v/s Pepsi, Polo v/s Mint, Kissan Sauce v/s Maggi Sauce, Tata Salt v/s Captain Cook salt, Colgate v/s Close up and so on. Each time this product war goes in favour of consumers.

 

Example: the car manufacturing company maruti Udyog Ltd. offer cars for different segments of the society. Like small cars such as Maruti 800, Maruti Omni; middle level cars like Maruti Zen ; and higher level cars like Swift DzIRE.

 

7. Limitations of market segmentation

 

Marketers should also consider the following disadvantages while developing the target marketing strategy:

 

7.1 Generally the target markets increases the cost of the marketing.

 

7.2 The efforts made for customisation; personalisation and individualisation of the markets lead to propagation of products and also increases the cost.

 

7.3 Efforts made for small niches to view the target customers could also negatively affect the customer response towards the marketing efforts.

 

7.4 Narrowly segmenting a market to the target market may actually prevent the product from developing brand loyalty. Brand strategies argue that the only way to build a large sustainable brand-loyal customer base is to build broad brand popularity. According to them, building loyal frequent buyers means broadening brand appeal to more and more different kinds of households rather than narrowing it through segmentation to small, heterogeneous group.

 

7.5 Target markets have been widely criticised for the unethical or stereotyping marketing activities. Targeting children and vulnerable age groups for promoting potential harmful products is one such unethical practice.

 

Marketing people should also consider the disadvantages while going in for the target marketing and ensure that they avoid them. As the benefits are more, the practice of target marketing is widespread and will likely continue far into the future because the companies have to understand the needs of its markets and deliver an appropriate marketing mix to succeed. In order, to do this they have to necessarily define their market through the target market selection process.

 

8. Summary

 

A market comprises of the people or businesses with a potential interest, purchasing power and willingness to spend the money to buy a product or service that satisfies their need. Segmentation is the process of portioning the large heterogeneous market into smaller groups of people who have similar needs and similar purchase behaviour. There are various methods of segmenting the markets and when if only one is selected for targeting, it is called as concentration strategy. It is a well known fact that no two buyers are identical even twins. They may differ on the basis of their nature, habits, behaviour, income, age, education, profession, likings, dis-likings and buyer’s preferences, etc. Therefore, the main objective of market segmentation is to establish the difference among the buyers so that homogeneous group of buyers can be determined. The process of selecting a potential market, segmenting, evaluating the segments and profiling the market to better target it with a personalized marketing mix is the target market selection process. Though the process is a sequential step, the ordering of various tasks varies with some tasks occurring simultaneously. Target marketing process is a continuous process due to continuous change in the market and market being a dynamic one. Due to this reason, the companies have to continuously revise it s marketing strategies so as to meet the required changing needs of the market. Market segmentation is the reality of the market situation. Different customers have different needs and preferences. Therefore, market demand for all the products and services is heterogeneous and not homogeneous. For segmentation when customer’s needs are analyzed; we find that there are number of needs, which are still unfulfilled and by fulfilling these needs we can become a successful marketer. Segmentation ensures higher customer satisfaction and improves effectiveness of the marketing programme. Market segmentation strategy is a customer-oriented philosophy. Marketing people should also consider the disadvantages while going in for the target marketing and ensure that they avoid them. As the benefits are more, the practice of target marketing is widespread and will likely continue far into the future because the companies have to understand the needs of its markets and deliver an appropriate marketing mix to succeed. In order, to do this they have to necessarily define their market through the target market selection process. There are number of logical steps which should be followed for the segmentation of the marketing, target marketing and positioning exercise. The basis sequence is that the first step should be the selection of the base or bases of segmentation and identification of the suitable market segments. Then assess the market segments as identified in the first step. Choose an overall targeting strategy. Deciding about which target segment would help its key customers. And developing a positioning strategy for each of the segment to be targeted. Lastly, a marketing mix is devised for each preferred segment to support the product positioning strategy.

 

Suggested Readings (Books and Websites)

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