What is Market Segmentation?

Market Segmentation is a process of dividing the market of potential customers into different
groups and segments on the basis of certain characteristics. The members of these groups share
similar characteristics and usually have one or more than one aspect common among them.

Types of Market Segmentation

Geographic Segmentation

Geographic segmentation divides the market on the basis of geography. This type of market
segmentation is important for the marketers as people belonging to different regions may have
different requirements. For example, water might be scarce in some regions which inflate the
demand for bottled water but, at the same time, it might be in abundance in other regions where
the demand for the same is very less.

People belonging to different regions may have different reasons to use the same product as well.
Geographic segmentation helps marketer draft personalized marketing campaigns for everyone.

Demographic Segmentation

Demographic segmentation divides the market on the basis of demographic variables like age,
gender, marital status, family size, income, religion, race, occupation, nationality, etc. This is one
of the most common segmentation practice among the marketers. Demographic segmentation is
seen almost in every industry like automobiles, beauty products, mobile phones, apparels, etc
and is set on a premise that the customers’ buying behaviour is hugely influenced by their
demographics.

Behavioural Segmentation

The market is also segmented based on audience’s behaviour, usage, preference, choices and
decision making. The segments are usually divided based on their knowledge of the product and
usage of the product. It is believed that the knowledge of the product and its use affects the
buying decision of an individual. The audience can be segmented into –

● Those who know about the product,

● Those who don’t know about the product,
● Ex-users,
● Potential users,
● Current Users,
● First time users, etc.

People can be labelled as brand loyal, brand-neutral, or competitor loyal. They can also be
labelled according to their usage. For example, a sports person may prefer an energy drink as
elementary (heavy user) and a not so sporty person may buy it just because he likes the taste
(light/medium user).
Psychographic Segmentation

Psychographic Segmentation divides the audience on the basis of their personality, lifestyle and
attitude. This segmentation process works on a premise that consumer buying behaviour can be
influenced by his personality and lifestyle. Personality is the combination of characteristics that
form an individual’s distinctive character and includes habits, traits, attitude, temperament, etc.
Lifestyle is how a person lives his life.

Personality and lifestyle influence the buying decision and habits of a person to a great extent. A
person having a lavish lifestyle may consider having an air conditioner in every room as a need,
whereas a person living in the same city but having a conservative lifestyle may consider it as a
luxury.

Benefits of Market Segmentation

Benefits or importance of market segmentation can be better explained by below stated points:
1. More Precise Definition of the Market:
Segmentation improves company’s understanding of why consumers do or do not buy certain
products. Marketer can have very clear understanding of his consumers. He knows adequately
about the market. He can formulate and implement marketing plan more successfully.
2. Maximum Customer Satisfaction:
Marketer can cater needs of customers more effectively. Market segmentation is relevant to the
modern marketing practices. It ensures both maximum satisfaction to consumers and maximum
sales to the company. Maximum consumer satisfaction is the master key to solve any problem.
Marketer can cater needs of customers more effectively. Customers can have products as per
their needs; they can get better products or services at lower costs.
3. Effective Marketing Strategy:
Market segmentation provides an opportunity to understand needs and wants of different
segments of the market. This can help in formulating marketing mix/programme more
meaningfully. Company can gain a maximum market response.
4. Essence of Modern Marketing:
Market segmentation strategy fits with modern marketing philosophy. If the marketer wants to
satisfy his valued consumers, market segmentation is the only option. It is an essential condition
for the successful modern marketing practice.
5. Improved Profitability:
On the basis of the study on needs of specific group of buyers, the products are manufactured.
Company can attract distinct groups of buyers and can increase sales. An increased sale has
positive impact on its profitability.
6. Optimum Use of Productive Resources:
Market segmentation leads to effective use of the valuable resources. Resources are allocated and
used exactly as per market needs, avoiding mismatching between what marketer offers and what
the market needs. So, valuable resources like man, money, material, space, technology, time,
etc., can be utilized more effectively.
7. Benefit of Specialization:
It is easy to direct marketing efforts more clearly and specifically. Company designs its
marketing programme for different products and for various groups of buyers. Specialization in
production and marketing can offer a lot of benefits to the company.
8. High Competitiveness:
As a result of market segmentation, a company can treat its consumers more effectively than
competitors. It improves competitive strength of the company. Company can respond strongly to
the competitor; can prevent the entry of competitors; or can defeat competitors. Company can
create and maintain the loyal consumers for long period of time.
9. Collection of Valuable Information:
Market segmentation process elicits a lot of valuable information for the company. Such
information is instrumental for marketing research, product development, and evaluation of
marketing activities. It is also useful for measuring effectiveness of sales and distribution
facilities.
10. Identifying Market opportunity:
Market segmentation helps establish close relations with specific groups of buyers. Close
relations facilitate a continuous interaction between consumers and company. Consumers inform
the company regarding changes in their needs, wants, and habits on a continuous basis or
whenever asked. Thus, it is easy for a marketer to project the future trends. He can identify
opportunities to be available currently or in the near future, and can plan accordingly.
11. Benefits to Society and Nation:
Market segmentation, if taken objectively, can contribute to social welfare and national
development. Basically, it is a consumer-oriented philosophy, and it results into a win-win-win
approach, that is, company, society, and nation, all three, are benefited.
This can improve overall economic system by manufacturing the right products of the right
quantity and quality for the right groups of consumers, made available continuously at the right
price and place by the right distribution channel.
12. Benefits to Small Scale Industrial Units:
We know that small-scale industrial units can function on a limited scale of operation. They can
have only the limited manufacturing and marketing capacity. Industries working on a small-
scale basis can take advantages of market segmentation. By concentrating on special demand of
specific group of a limited number of consumers, they can afford products and get profitable
market easily. They can compete with the large industrial units, too.