Process of Market Segmentation

Market should not be segmented on the basis of guesses or hunch estimation. A proper basis and process should be followed for it. The main task are information collection, survey, analysis of information, profile preparation and selection of market segments.
Process of Market Segmentation

1. Survey

Collecting information through survey is the first stage of market segmentation. While collecting information special attention should be paid to customers’ need, interest, characters, features of product, brand awareness, product using style, customers’ tendency towards classification of goods, geographical and psychological features of customers etc. Besides this, information about education, age, fashion, practice and custom, religion, purchasing power, purchasing behavior, buying motives, purpose etc. should be collected. Business organization should adopt proper methods and processes to conduct market survey.

2. Analysis

After the information has been collected through survey, it should be carefully studied and analyzed. Proper statistical tools should be used to analyze the information. The demand affecting variables should be classified into special and general categories. Such variables should be analyzed in context of customers’ need and their characters.

3. Profiling

In the third stage, market segmentation profile should be prepared by identifying the basis of market segmentation. Profiles of each segment should be prepared on the basis of customers’ need and their character. Character and need of the customers of each segment can be identified by studying the profiles. Preparing profiles of each market segment several alternatives of market segments can be found from which better alternative can be selected.

4. Selection of the market segment

Selection of market segmentation is the final stage of market segmentation process. In this stage, the profile of market segmentation is evaluated carefully and one or more market segments are selected. The selected market segments are the targeted market of business organizations.

Evaluation of Market Segment

After completing the segmentation of market, they should be evaluated and better market segments should be identified. While evaluating market segment, the company should analyze the size of the segments, and growth, structural attraction of the segment and goal and resource of the company.

1. Segment size and growth

While evaluating market segment, at first information about sale, growth rate and expected profit should be collected and analyzed. The segment size and growth rate should be the best. But the size and growth rate should be looked comparatively. Some companies like to make their target those markets which have prospective of large quantity sale, high growth rate and high share of profit. But such market segment may not be attractive for all companies. The companies select the best market segment on the basis of their efficiency, means and resources.

2. Segment structural attractiveness

While evaluating market segment, the size, growth rate and profit should be analyzed and its structural attractiveness be considered. According to Michael Porter, the structural components to, affect attractiveness of market segments are competitors, substitute products, buyer’s power, suppliers’ power etc. should be studied.

  • Competitors: Market segments may be more competitive and may also be less. The market segments where there are already more competitors become less attractive. Similarly, if the competitors are more capable and aggressive, such market segment also becomes less attractive.
  • Substitute products: If a market segment has to face the competition with present and future substitute products, such market segment becomes structurally less attractive because a company becomes unsuccessful to earn profit.
  • Power of buyers: The power of buyers also affects market segment. If bargaining power of buyers is more than sellers’, they give pressure to decrease price, increase quality and increase other supply related services. As a result, attractiveness of market segment lessens.
  • Power suppliers: If powerful suppliers are in market segments, such segments become less attractive, because they become able to control price, quality and quantity of the products.

3. Company’s objectives and resources

Even if the size, growth and structurally attractive may be a market segment, the company should compulsorily consider its objective and resources. Some market segments may be attractive but they should be abandoned, if they are not suitable to the company’s long term objective. So, a company should select only those market segments which are suited to the company’s objective. Similarly, while analyzing market segments, production facilities, employees and their ability, financial condition, means and resources also should be considered.

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