Meaning of Market Segmentation

Meaning of Market Segmentation

The process of exchanging goods or services is called market. There may be different kinds of customers in market. Only one type of firm cannot fulfil/meet all the needs of all customers. So, a firm should classify the market on different basis and identify target market, the same is called market segmentation. Consumer markets can be segmented on geographic and demographic levels, population, psychographic and behavioral basis. Similarly, industrial market can be segmented on the basis of geographic, demographic, operation and purchasing system. Customers may be of different types according to their need, want, interest, buying purpose, buying habit, age, gender, education, religion, income level, and place. So, market segmentation should be made deeply studying and analyzing such factors.

While segmenting market, very practical strategy should be formed. The characteristics of the customers of segmented market should be similar while segmenting the total market. For instance, on the basis of income level, market can be segmented in three categories such a slow income level, middle income level and high income level. On the basis of age, market can be segmented in four categories such as children’s market, teenagers’ market, youths’ market, elders’ market. Similarly, on the basis of gender, market can be segmented in two categories like females’ market and males’ market. Generally, the character of same income level customers becomes same. Similarly, the character of same aged customers becomes the same. Generally, the character of the customers of the same segmentation becomes same even segmented on other basis.

While segmenting the total market, it becomes easy to make market strategy as the needs, wants, interest and other characteristics of the customers become almost same. The nature and features of goods should be considered in segmenting market. Same basis of segmentation cannot be fit for all types of goods. Let’s take an example to make it clearer, if an automobile manufacturing company has not adopted market segmentation policy, it becomes appropriate to segment market on the basis of low income level, middle income level and high income level but not on the basis of education, age, gender, religion etc.

All types of customers can be supplied with different quality and types of automobiles of different prices by segmenting the market in this way. High quality, middle quality and low quality vehicles of high price, middle price and low price respectively can be supplied to the customers having high, middle and low income customers. All the three or two or only one types of customers can be targeted and manufactured automobiles accordingly. Different experts, writers and scholars have defined market segmentation; important ones have been given as follows:

According to William J. Stanton, Michael J. Etzel and Bruce J. Walker, “Market segmentation is a process of dividing the total market for a goods or services into several smaller groups, such as that the members of each group are similar with respect to the factors that influence demand.”

According to Prof. Philip Kotler, “Market segmentation is the act of identifying and profiling distinct group of buyers who might require separate product and/or marketing mixes.”

According to Ronald W. Hasty and W. R. Ted, “Segmenting markets simply divides the heterogeneous mass market into groups each of which has one or more homogeneous characteristics.”

According to Prof. E. Jerome McCarthy, “Market segmentation is naming broad product markets and segmenting these broad product markets in order to select target market and develop suitable marketing mixes.”

In conclusion, the process of dividing total market into several small parts on the basis of customers’ need, want, buying purpose, buying habit, age, education, gender, religion, income, place etc. is called market segmentation. Market segmentation is made in a way that, generally, the characteristics of all the customers within same segmentation are similar. As it is difficult to satisfy all types of customers by a firm, it should identify target markets by making market segmentation and should develop proper marketing mix. Market segmentation is customer oriented mission, in which total market is divided into several parts of same characteristics by identifying customers’ needs or wants to supply them with their demands.

Requirements of Market Segmentation

Market segmentation is a consumer oriented mission. This mission supplies goods or services to satisfy wants and needs of customers of the target market in order to achieve organizational goal. Same basis of market segmentation for different products cannot be appropriate. The necessary components for market segmentation are as follows:
The requirements of Market Segmentation

1) Divisible 

Market should be made divisible for market segmentation. Market should be divided on the basis of purchasing power, purchasing purpose, purchasing habit, lifestyle, living style, gender, religion, place etc. While dividing market, the customers having same wants and character should be grouped. Doing so, it becomes easy to form marketing mix strategy. If the total market is not easy to divide and has no characters, adopting market segmentation policy becomes impossible.

2) Measurable

Customers’ wants, purchasing power and characteristics should be measurable. Besides, the information necessary for market segmentation also should be easily available. Customers’ income, age, gender etc. can be easily available. Customers’ income, age, gender etc. can be easily obtained and measurable. But beliefs, perception and attitude of the customers cannot be measured. So, market segmentation should not be made on the basis of the components which cannot be measured because true information cannot be obtained from it. As a result, it becomes difficult to make marketing mix.

3) Accessible

Market segmentation should be made in a way that it becomes easy to reach there and provide effective services. Market segmentation should be made in a way that marketing activities such as distribution, advertisement media, selling efforts etc. can reach there easily. If market segmentation is made beyond the access, it becomes difficult to reach there, provide goods or services and market segmentation becomes ineffective. So, these factors should be well though and considered while segmenting market.

4) Substantial

Profit components should not be missed while segmenting market. If profit cannot be earned from providing goods or services to the customers, a business firm cannot make sustainable development. The main purpose of market segmentation by identifying target market is to earn profit. So, market should be segmented so that profit can be clearly seen. For this, market segments should be sufficient and satisfactory. If the market segment is small, it becomes difficult to earn profit.

5) Actionable

The other important requirement of market segmentation is action ability. A business organization should be able to implement its policy and programs to attract targeted market segment and provide services. So, market segmentation should be made considering the human, physical and financial resources of a firm so that it can be easily implemented. If actions cannot be carried out due to the lack of human, physical and financial capacity, the market segmentation becomes ineffective.

Benefits of Market Segmentation

Dividing total market into small parts or segments is called market segmentation. Market segmentation is a customer oriented concept. It makes easy to identify target market and make marketing plans and programs. Market segmentation plays an important role in identifying market opportunities, effectively using market resources, evaluating competitors, making strategic plans, specializing market, making effective marketing mix and making business organizations adoptable to the environment. The benefit of market segmentation can be presented in the following figure:
Benefits of Market Segmentation

1) Identification of market opportunities

To be able to identify market opportunities is an important aspect of market segmentation. Size, development and wants of each segment can be analyzed by dividing total market in several segments. Besides, characters of the customers of each segment and possible profit also can be analyzed by segmenting the market. Market opportunities can be identified from such analysis. More profitable market segment can be chosen leaving aside the less profitable one. As a result, the business firm becomes able to achieve its goal. The joint venture commercial banks operating in Nepal want to conduct their activities in only profitable city areas. They are not willing to open their branches and operate in less profitable rural areas.

2) Effective use of marketing resources

The other important aspect of market segmentation is to be able to use marketing resources effectively. Marketing resources can be effectively used by using separate marketing mixes for each segment. Goods or services can be produced according to the demand of market segment. Price of goods or services can be fixed according to the purchasing power of the customers of each segment. Promotional activities also can be conducted according to the market segment. Proper distribution channel can be selected according to the demand and wants of segment. If market is not segmented, it becomes difficult to produce suitable goods or services to all segments, fix price, conduct promotional activities and select distribution channel.

3) Evaluation of competitors

The other important aspect of market segmentation is successful evaluation of competitors. It is necessary to get all information about competitors’ situation of each segment from market segmentation. Their weak and strong aspects can be identified through their evaluation. True information about competitors’ strategy and marketing mix can be obtained. Business success can be achieved by identifying weak aspects of competitors.

4) Strategic planning

The other important aspect of market segmentation is to help in making effective strategic plans. Strategic plans can be made for each market segment by segmenting market. Information about number of customers, purchasing behavior of customers, their purchasing power and purchasing purpose should be obtained for making strategic plans. Along with this, it is also necessary to get knowledge about the market strategies of competitors. If a detail study is carried out of market segment by segmenting market, information about all these matters can be acquired. Appropriate strategic plans for each segment can be made on the basis of this information.

5) Market specialization

Market segmentation also helps in market specialization. Total market becomes vast. In vast market, it becomes difficult to specialize market by analyzing customers. So, a business organization should divide total market in different segments, specialize market by studying and analyzing the customers of each segment and can specialize market adjusting with marketing mix to satisfy the customers.

6) Effective marketing mix

The other important aspect of market segmentation is to be possible for effective marketing mix. True information about customers’ interest, their habit, custom, purchasing power, purchases behavior, buying motives etc. can be acquired from market segmentation. Proper marketing mix can be prepared for each market segment on the basis of such information and can be implemented effectively. Besides this, marketing mix can be changed according to necessity and time.

7) Environmental adaptation

Environment is an important component to affect any business organization. If environment is made favorable to the organization, business success can be easily achieved. Environmental components of small segments also can be identified through market segmentation. The quick changing environment can be anticipated. As a result, business organization can be made adaptable to the environment by marketing mix.

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