“The purpose of market segmentation is to determine difference among buyers which may be consequential in choosing among them or marketing to them” — Philip Kotler
The modern marketing is customer-oriented. All marketing activities revolve around the customer. In order to achieve the marketing objectives, it is very necessary to have a clear understanding of the customers’ characteristics or behaviours, which are not the same.
Two consumers of the same products are never in conformity with each other as far as their nature, habits, taste, income, age, purchasing power or other attributes are concerned. Since all consumers cannot be satisfied with the same product, the marketer sub-divides the market in other to facilitate the marketing of his product. An attempt to identify these differences and to divide them into group is market segmentation.
Definition of Market Segmentation
Market segmentation is the process of grouping buyers into segments or units for effective marketing program.
Cundiff and Still, defined market segmentation as the grouping of consumers according to such characteristics as income, age, degree of urbanization, race, geographic location or education.
William J. Stanton, defined market segmentation as taking the total heterogeneous market for a product and dividing it into several sub markets or segments, each of which tends to be homogenous in its significant aspects.
Requirements for Effective Segmentation
In segmenting a market certain conditions must be observed. To ensure effective segmentation Kotler (1984) enumerated the following basic characteristics as the requirements or conditions.
Measurability: This is a condition which demands that members of the market segment must be measurable on the chosen variable. The age of customers is both measurable and obtainable. However, not all characteristics are subject to measurement. For instance, it is not easy to measure tastes and preference in terms of quality versus quantity.
. Substantiality: This is a requirement that the market segment should be large enough to be profitable to ensure a reasonable return on investment (ROI).
Accessibility: The market segment should be accessible through existing marketing institutions like middlemen, advertising media, company sales forces with a minimum cost and effort.
Profitability: The segment must show signs of profitability to be considered viable.
Stability: The segment should be stable to be effective. In other words, efforts must be made to ensure that the market segment is not so volatile such that the changes may be detrimental to business.
Identifiability: The buyers constituting the market segment must be such that they can be identified. Identifiability is a characteristic that make it possible for the marketer to group the buyers into age, income, sex, and occupation, and able to know the specific requirements of his market segments.
Basis or Criteria for Market Segmentation
There may be several criteria or basis for market segmentation. The bases may differ from product to product because the sensitivity of customer differ. There is, therefore, no generally agreed way of segmenting markets; and this concept is currently a controversial one. Various variables are being used to classify a market into ^mailer markets. The most commonly used are geographic, demographic and socio-economic, behaviourial and psychological variables.
1. Geographic Variables: This is a very popular criterion for segmenting the market. The markets are divided on the basis of geographical factors, such as area, climate, states, density of population and so on. Each state may be recognized as a separate market. The state may further be divided or segmented into rural, town, or urban areas or where market is international the division may be national. 2. Demographic and Socio-Economic Variables: It is the most common way of segmenting the markets on the basis of demographic and socio-economic characteristics of the consumers. Such factors are:
Age: People of different age consume different products in varying quantities. The producer should know for what age his product would be most suited so that he can plan his pricing policy, advertisement policy and marketing policy.
Sex: Markets may also be divided on the basis of sex, that is male and female. Some products are exclusively produced for women while some are for men only. For example lipstick and sanitary pads are meant for women, and on the other hand shaving cream or powder is only for men.
Income: Income seems to be the most important variable that causes differences in the demand of goods and services. The marketer. should bear this in mind while preparing his marketing policy, the income of the prospective buyers of his product. People in high income group prefer quality goods; hence they can be motivated to buy the high priced goods, while people in the low income group are attracted towards low priced goods.
Education: The consumers can be divided on the basis of educational levels such as educated, semi-educated and uneducated. The consumption of some consumer products is influenced by the level of one’s education. For example, a book market may be segmented on the basis of Primary, Junior Secondary School, Senior Secondary School and Higher School books.
Race and. Religion: The religion background of an individual affects the choice of product and the consumption pattern of that individual. Some religious groups forbid the consumption of certain types of food, fish, meat, and drinks. For example the Moslem forbid the consumption of pork meat. While some Christian sects like the Seven Day Adventists forbid the consumption of scale-less fish, periwinkles and crayfish. Certain race consume snake while some forbid the consumption of snake.
Social Class: Social classification consists of upper, middle and lower classes on the social stratification. The upper class require sophisticated and expensive goods while the lower class prefers cheap goods.
Size of Family: The number of people in the family and the type of people in the family affects the demand for that family. Refrigerators are produced in different sizes to suit the needs of different family sizes.
3. Psychographic Variables: Psychographic variables refer to individual personality, life style, buying motives, product knowledge and thinking. Some customers are crazy for new fashion that may increase their prestige in the society.
4. Behaviourial Variables: Consumer behaviour may also form basis of market segmentation. Behaviourial variable includes: Usage Rate, Buyer Motive, Brand Loyalty, etc. Customers may be grouped according to their usage rate, that is non-users, light-users, medium-users and heavy-users. Buyer motives includes factors such as economics. Quality of goods, reliability and prestige in society etc. Brand loyalist exhibit varying degrees of loyalty to brands of products. Buyers can be divided into four groups according to their loyalty status:
Hard-Core Loyal: Those consumers who buy only one brand all the time.
Soft-Core Loyal: Those consumers who show loyalty to two or three brands.
Shifting Loyal: Those consumers who are moving from one brand to favouring another.
Switchers: Those consumers who buy a number of brands and show no loyalty to any.
Types Of Market Segments
The classification of market segments are as follows:
1. Market Aggregation or Undifferentiated Market:
Market aggregation is just the opposite of ^segmentation. Aggregation implies the policy of putting together into one mass all the markets for the product. Under this concept management having only one product considers the entire buyers as one group. Market aggregation or mass market enables an organization to maximize its economics of scale of production, pricing, physical distribution and promotion. However, the applicability of this concept in consumer-oriented market is doubtful. The total market concept as envisaged by market aggregation may not be realistic on the present clay marketing when consumers fall under heterogeneous groups. Market aggregation or Undifferentiated market can be represented as below.
2. Segmented Markets or Differentiated Markets: Under this strategy, the firm groups the buyers on the ‘basis of their common needs and desires. It differentiates one group from the other on the basis of their needs, religion, personality and behaviour. For instance, instead of mentioning a single market for shoes, it may be segmented and differentiated into several markets e.g. shoes for executives, doctors, lawyers, students etc; or on the basis of sex: shoes for ladies, men, etc. Under this concept, a firm decides to operate in several or all segments of the market and designs separate product-marketing programs. The differentiated marketing is sales-oriented, and therefore costly for the organization. Segmented markets or Differentiated market can be represented as below.
3. Overlapping Segments: This segment represents a situation where consumer groups have characteristics that are heterogeneous to each other as well as a common need that unite them. By illustration, let us assume that there are three groups -A (high income), B (middle income), C (low income), the segmenting variable is income and the product is motorbike. Individuals in these segments will require the motorbike for different purposes but with overlapping needs. Overlapping Segments can be represented as in figure 6.3 below.
4. Mutually-Exclusive Segments: This represent extreme situation where the consumer groups or segments do not share anything in common. The consumers in group A does not have need for products in group B, C, D, and vice versa. This type of segment is not possible in real business situation.
Advantages of Market Segmentation
Segmentation will help the organization to concentrate their efforts on more profitable segments.
Market segmentation leads to a more efficient allocation of resources.
Segmentation helps the marketer to design products that will meet the demands of the market.
It leads to more precise definition of the market in terms of consumer needs, thereby giving management an opportunity to satisfy the needs.
Segmentation helps management, to assess the strengths and weakness of its competitors.
Through segmentation the marketer will also be in a better position to program his marketing communications to appeal to specific segments.
Segmentation leads to setting more precise marketing objectives.
Disadvantages of Market segmentation
One major disadvantage of market segmentation is that it tends towards product disaggregation.
Management has to formulate and monitor marketing mix for different segments which sometimes complicate decision making.
Since needs and wants are not static rather it is dynamic in nature. Thus the needs and wants of the target market or segment must be reviewed promptly.
It is sometimes difficult to recognize, and as a result, the segment may not really need the product.
Identified market segment may not have adequate consumer potential to justify investment required to introduce the product to that market.