Introduction to Market Segmentation

Market is composed by the customers and sellers, and different customers may have different needs, characteristics, behavior or buying attitudes. Each customer is a separate entity, they have unique wants. Therefore, sellers may divide a market into different groups of individual markets. Every consumer group is a market segment, each segment are the tendency of buyers with similar wants or needs. They divide the market into distinct groups who have distinct needs, wants, behavior or who might want different products and services. This action is known as marketing segmentation.

The modern concept of market segmentation was put forward by Phillip Kotler, who states that market segmentation is the “sub dividing of a market into homogenous subsets of customers, where any subset may be conceivably be selected as a market target to be reached with a distinct marketing mix“. It is a concept in economics and marketing. Marketing segmentation is marketers through market research, based on the wants and desires of customers, differences of their buying behavior and purchasing habits, divide a whole market into a number of individual groups in the market classification process. Segmentation allows the wine company to better satisfy the needs of its customers. Company only through the market segmentation, select the most favorable market area in order to achieve economic profits. If more detailed to segmented market, it can be two parts, consumer market segmentation and business market segmentation.

Market segmentation is the company needs of the market diversity and differences of consumer behavior, all current and potential customers in the whole market, classified as a number of similar characteristics of the customer groups, in order to determine their target market. It helps wine companies understand consumer requirements and then satisfy them.

In order to effectively segment a market, the various segments must have certain characteristics. Firstly, they need to be easily identifiable, with the attributes which differentiate them from other segments being easy to identify and measure. They also need to be accessible, through viable communication and distribution channels that are strongly associated with the segment. A segment should also be large enough that a company can make a profit from serving them, and relatively stable to allow the marketing time to work. Finally, they need to be unique, and respond differently to different marketing approaches. If they do not respond differently to another segment, then they are effectively part of the same segment. As such, market segmentation aims to provide groups of people which are as similar as possible, but as different as possible from other segments.

Market Segmentation in Marketing Management

The opposite of market segmentation is mass marketing, whereby companies treat a market as being homogenous, in other words everyone has the same needs and wants. As a result, companies simply a marketing mix designed to appeal to the entire market. This allows significant economies of scale in terms of mass production and communication, and can be very effective for dominant products such as Coca Cola or KFC, who can appeal to a large section of a market. However, in general customer needs and wants will be different depending on customers’ ages, socio economic grouping, gender and other factors, hence mass marketing will not appeal to all customers.

Consumer Market Segmentation

The consumer market dominated in the market structure. Its development, directly or indirectly affect the industrial development of the market and the overall socio-economic development. The main factors affecting the consumer market is consumer demand. Consumer demand for the quantity and composition of population impact, but also by the quality of goods and variety of colors, but the most important factor is people’s purchasing power. It directly related to people’s income level. Consumer markets can be segmented in four main consumer characteristics: geographic, demographic, psychographic and behavioral segmentation.

  1. Geographic segmentation, it divides the market into several geographic parts based on national, regional, urban, rural, climate or topography.
  2. Demographic segmentation, it divides the market into groups such as age, gender, occupation, income, family size, family type, family life cycle, nationality, ethnicity, religion, social class. These factors are the most popular areas for a company to segment customers. Consumer demands always change with age. So many companies use age segmentation to position their product. Such as KFC targets to young people and children. Clothes Company offer different style clothes to the different generations. Income segmentation is often used by many companies as cars, clothing, luxury furniture and jewelry. Income changes will directly affect consumers’ desire and expenditure patterns. High-income consumers will buy more expensive products than low-income consumers.
  3. Psychographic segmentation, it is according to consumer lifestyle, personality, buying motives and other variables, divided into different groups. More and more enterprises, such as clothing, cosmetics, furniture, entertainment, paid attention to people’s lifestyle segmentation. Lifestyle is that people consumption, entertainment, specific habits and patterns, different lifestyles will have different needs preferences. For example, British clothing company put some women classified as “simple-type women”, “fashion-type women” in two types. Namely, the designers will design different styles, color and material of the garment.
  4. If the market divided by behavioral segmentation, it is according with the consumer purchase or using time of a commodity, purchase volume, purchase frequency, brand loyalty and other variables. Purchasing many commodities have time limit. For instance, Airlines, travel agency during summer vacation to advertise and implement concessionary fares to attract people travel by plane; businesses doing great quantity advertising about air-conditioning in the hot summer effectively increase sales. Purchase frequency segmentation, such as pencil, primary scholars often buy, senior scholars in normal and the workers or peasants not always buy.

Business Market Segmentation

Industrial market is a business strategic and tactical decision-making, especially in the marketing. Many markets can be segmented into five types: non-users, ex-users, potential users, first-time users and regular uses of products and services. The objective for business market segmentation is to identify the most significant differences among current and potential consumers that will influence their purchase decisions or buying behavior. This will allow the marketers to classify products prices, programs, or solutions for maximum competitive profit. Industrial market can be segmented geographically and behaviorally which same with consumer market. In industrial market, patterns of consumption behavior can be a basis for segmentation, such as buying statues, usage rate and loyalty status.

Levels of Market Segmentation

We have four levels of segments

  • Segments
  • Niches
  • Local areas
  • Individuals.

1. Segment Marketing

A market segment consists of a large identifiable group within a market, with similar wants, purchasing power, geographical location, buying attitudes, or buying habits. For example, an automaker may identify four broad segments in the car market: buyers who are primarily seeking (1) basic transportation, (2) high performance, (3) luxury, or (4) safety.

Because the needs, preferences, and behavior of segment members are similar but not identical, marketers urge to present flexible market offerings instead of one standard offering to all members of a segment. A flexible market offering consists of the product and service elements that all segment members value, plus options (for an additional charge) that some segment members value. For example, Delta Airlines offers all economy passengers a seat, food, and soft drinks, but it charges extra for alcoholic beverages and earphones.

Segment marketing allows a firm to create a more fine-tuned product or service offering and price it appropriately for the target audience. The choice of distribution channels and communications channels becomes much easier, and the firm may find it faces fewer competitors in certain segments.

2. Niche Marketing

A niche is a more narrowly defined group, (typically a small market whose needs are not being well served). Marketers usually identify niches by dividing a segment into sub-segments or by defining a group seeking a distinctive mix of benefits. For example, a tobacco company might identify two sub-segments of heavy smokers: those who are trying to stop smoking, and those who don’t care.

In an attractive niche, customers have a distinct set of needs; they will pay a premium to the firm that best satisfies their needs; the niche is not likely to attract other competitors; the niche gains certain economies through specialization; and the niche has size, profit, and growth potential. Whereas segments are fairly large and normally attract several competitors, niches are fairly small and may attract only one or two rivals. Still, giants such as IBM can and do lose pieces of their market to niches: Dalgic labeled this confrontation “guerrillas against gorillas.”

3. Local Marketing

Target marketing is leading to some marketing programs that are tailored to the needs and wants of local customer groups (trading areas, neighborhoods, even individual stores). Citibank, for instance, adjusts its banking services in each branch depending on neighborhood demographics; Kraft helps supermarket chains identify the cheese assortment and shelf positioning that will optimize cheese sales in low-income, middle-income, and high-income stores and in different ethnic neighborhoods.

Those favoring local marketing see national advertising as wasteful because it fails to address local needs. On the other hand, opponents argue that local marketing drives up manufacturing and marketing costs by reducing economies of scale. Moreover, logistical problems become magnified when companies try to meet varying local requirements, and a brand’s overall image might be diluted if the product and message differ in different localities.

4. Individual Marketing

The ultimate level of market segmentation leads to “segments of one,” “customized marketing,” or “one-to-one marketing.”For centuries, consumers were served as individuals: The tailor made the suit and the cobbler designed shoes for the individual. Much business-to-business marketing today is customized, in that a manufacturer will customize the offer, logistics, communications, and financial terms for each major account.

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